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ERISA Litigation Update: What Employers Should Know

ERISA Litigation Update: What Employers Should Know. Al Holifield Holifield & Associates 11907 Kingston Pike Suite 201 Knoxville, TN 37934 aholifield@hapc-law.com 865-566-0115. Robert Rachal Proskauer 650 Poydras St Suite 1800 New Orleans, LA 70130 rrachal@proskauer.com

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ERISA Litigation Update: What Employers Should Know

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  1. ERISA Litigation Update: What Employers Should Know Al Holifield Holifield & Associates 11907 Kingston Pike Suite 201 Knoxville, TN 37934 aholifield@hapc-law.com 865-566-0115 Robert Rachal Proskauer 650 Poydras St Suite 1800 New Orleans, LA 70130 rrachal@proskauer.com 504-310-4081 ERISA Litigation Update 2015

  2. Litigation Update Overview • Preview of items we will cover in more depth later in the program: • Obergefell and impact on same-sex employee benefits • Tibble and Tatum and need for fiduciary process to monitor plan investments • Hobby Lobby & King: Affordable Care Act and other healthcare litigation • Some good news: Courts approvals of plan terms and SPDs to limit litigation costs and exposures • Other items of potential interest: Tackett and retiree health; Amara and expansion of ERISA remedies ERISA Litigation Update 2015

  3. Preview Items: Obergefell, Tibble and Tatum

  4. Obergefell v. Hodges: Same-Sex Marriage & Employee Benefits • Background and history • The case involved fourteen same-sex couples and two men whose same-sex partners are deceased from Kentucky, Michigan, Ohio and Tennessee, claiming that the denial by a state of the right to marry or to have marriages lawfully performed in another state violates the Fourteenth Amendment. ERISA Litigation Update 2015

  5. Obergefell v. Hodges: Same-Sex Marriage & Employee Benefits • The Decision • In a 5-4 decision, the United States Supreme Court held that under the Fourteenth Amendment “same-sex couples may exercise the fundamental right to marry in all States,” and “that there is no lawful basis for a State to refuse to recognize a lawful same-sex marriage performed in another State on the ground of its same-sex character.” Obergefell v. Hodges, 576 U. S. ____ (2015), p. 28. • Continuation of Windsor (which abrogated DOMA), and will have a substantial impact on employee benefits. ERISA Litigation Update 2015

  6. Tibble and Ongoing Monitoring of Plan Investments • Tibble v. Edison Int’l, 135 S. Ct. 1823 (2015). Plan selected more expensive retail class instead of investor class of mutual funds. Funds selected more than 6 years before suit was filed were time barred. In a 9-0 decision, the Supremes reverse: • ERISA’s fiduciary duties are derived from the common law of trusts. • Under common law of trusts, managing embraces monitoring of investments, and a fiduciary should systematically consider the investments at regular intervals. ERISA Litigation Update 2015

  7. Tatum and Burdens of Proof if No Prudent Fiduciary Process • Tatum v. RJR Reynolds Investment Comm., 761 F.3d 346 (4th Cir. 2014). Case arose out of spin off of Nabisco and elimination of the Nabisco stock fund from the RJR Reynolds 401(k) plan. • Working group of HR employees, not the plan’s Investment Committee, decide to divest fund after about an hour of consideration. • Fourth circuit held that once a plaintiff shows that a fiduciary breached is duty to follow a prudent process, the fiduciary has to show that a prudent fiduciary “would have” come to the same decision. ERISA Litigation Update 2015

  8. Hobby Lobby & King: Affordable Care Act and Other Healthcare Litigation Issues That May Impact You

  9. Hobby Lobby & Religious Freedom for Closely Held Corporations • Burwell v. Hobby Lobby Stores, Inc., 134 S. Ct. 2751, 189 L. Ed. 2d 675 (2014). Does the Religious Freedom Restoration Act (RFRA) and the Free Exercise Clause apply to for-profit, secular closely held corporations operating in accord with their families’ religious principles forbidding certain forms of contraception? • The RFRA states: “the Government shall not substantially burden a person’s exercise of religion.” • For purposes of the RFRA, are for-profit corporations persons exercising religion? ERISA Litigation Update 2015

  10. Hobby Lobby & Religious Freedom for Closely Held Corporations Held 5-4: • Profit-making businesses that are owned only by a family or other closely allied individuals or by a family trust have a legal right under the RFRA not to be forced to include 4 specific forms of birth control in their workers’ plans, if they have sincere religious beliefs • First time the Court has decided that RFRA covers corporations not just persons ERISA Litigation Update 2015

  11. Hobby Lobby & Religious Freedom for Closely Held Corporations • Contraceptive mandate clearly imposes a substantial burden on the owner’s beliefs and the company’s exercise of religion • First Amendment precluded weighing nature of burden if religious beliefs made the acts morally objectionable • Government did not show that applying ACA’s contraceptive mandate was the least burdensome way to avoid interfering with religious convictions • The plan and the third party administrator (TPA), the insurer or the government could provide the contraceptives at issue ERISA Litigation Update 2015

  12. Hobby Lobby & Religious Freedom for Closely Held Corporations • IRS defines closely-held corporations: • 50% of the value of outstanding stock is owned by 5 or fewer individuals at any time during the last half of the tax year • Is not a personal service corporation • Covers 90% or more of allbusinesses • Employs 52% of Americanworkforce ERISA Litigation Update 2015

  13. Hobby Lobby & Religious Freedom for Closely Held Corporations • Does use of a “middle man” to provide contraceptive coverage adequately accommodate religious objections? • Is the required filing of a government form stating religious objections an act of participation in the provision of the objected contraceptive services? ERISA Litigation Update 2015

  14. Hobby Lobby & Religious Freedom for Closely Held Corporations • Will corporations be able to deny other medical services such as blood transfusions, vaccinations, medical marijuana, medical care that uses embryonic stem cells? • Will businesses be permitted to refuse to do business with those in same sex marriages? • Will this attribution to corporation of owner’s beliefs and rights impact piercing of the corporate form for liability? ERISA Litigation Update 2015

  15. King v. Burwell, Premium Tax Credit: Overview • For certain individuals, the ACA provides for refundable tax credits that help pay for coverage purchased on an exchange • The ACA’s statutory language makes these tax credits available as a subsidy to certain individuals who purchase health insurance through exchanges established by a state • But, 36 states have not established exchanges; federal DHHS established instead. • IRS ruled these federal exchanges qualified individuals for these subsidies. At least 8 million people affected. • Issue in King v. Burwell, 2015 WL 2473448 (June 25, 2015): Are subsidies available for federal exchanges? ERISA Litigation Update 2015

  16. King v. Burwell, Premium Tax Credit: Ruling • The Supreme Court upheld the IRS’s interpretation, relying on statutory scheme and the structure of the provision. • Limiting to state-established exchanges would effectively eliminate tax credits and the coverage mandate in states with federally-run marketplaces (2 out of 3 major reforms) • Would cause “death spirals” to insurance market in states with federally-run exchanges, particularly where insurance companies continued to be subject to guaranteed issue and community rating requirements • That result could not have been the intent of Congress ERISA Litigation Update 2015

  17. King v. Burwell & Hobby Lobby: Some Implications • King v. Burwell (and earlier National Federation of Independent Business v. Sebelius) suggest the Court is not going to repeal the ACA – major change will need to occur through the political process. BUT • Hobby Lobby suggests that there may be significant religious/First Amendment limitations not just to the ACA, but to same-sex marriage and other federal rights. • Which will trump: e.g., Religious rights or same sex marriage rights? ERISA Litigation Update 2015

  18. ACA and Federal Mental Health Parity Act: Benefit Mandates Leading to Litigation • Federal Mental Health Parity Act: • Financial requirements (copayments, coinsurance, deductibles, etc.) and treatment limitations (limitations on the frequency of treatment, number of outpatient visits, amount of days covered for inpatient stays, etc.) applicable to mental health benefits generally can be no more restrictive than those applied to medical benefits • Many similar state Acts also exist • Federal Parity Act applies to plans with 50 or more employees. Enforced through ERISA under the Federal Parity Act • Causing major changes in how mental health benefits are evaluated and paid ERISA Litigation Update 2015

  19. ACA and Federal Mental Health Parity Act: Benefit Mandates Leading to Litigation • The DOL’s final rules on the Federal Parity Act went into effect in 2014 • These rules demand parity on non-quantitative treatment limitations, such as medical management standards; medical necessity or medical appropriateness determinations; formulary design for prescription drugs; standards for admission to plan provider networks; determining usual, customary, and reasonable fee charges; implementing “fail first” policies • This expansion is leading to more litigation ERISA Litigation Update 2015

  20. ACA and Federal Mental Health Parity Act: Some Recent Litigation Examples • Alexander v. United Behavioral Health, No. 14-CV-02346-JCS, 2015 WL 1843830 (N.D. Cal. Apr. 7, 2015). Participants in a plan administered by United Behavioral Health filed a class action complaint against UBH • Alleged that UBH coverage guidelines are more restrictive than generally accepted standards in the mental health community • Upon a motion to dismiss, court held that Plaintiffs stated a claim against UBH for breach of fiduciary duty and improper denial of benefits under ERISA ERISA Litigation Update 2015

  21. ACA and Federal Mental Health Parity Act: Some Recent Litigation Examples • New York State Psychiatric Ass’n., Inc. v. UnitedHealth Group, et al., 980 F.Supp.2d 527 (S.D.N.Y. 2013). Various plaintiffs filed class action complaint against their various benefit plans’ insurers after not being fully reimbursed for mental health benefits. Alleged that UnitedHealth adopted improper standards for coverage of mental health care • Required “compelling evidence” that psychological conditions would deteriorate without care • Preapproval for mental health services • District Court thought claims had substantive merit, but dismissed them because United was not the “plan administrator” for the plans at issue. ERISA Litigation Update 2015

  22. ACA and Federal Mental Health Parity Act: Some Recent Litigation Examples • New York State Psychiatric Ass’n., Inc. v. UnitedHealth Group, et al., 2015 WL 4940352 (2d Cir. Aug. 20, 2015). On appeal, Second Circuit reverses dismissal, and remands case to district court: • A claims administrator that controls the claim for benefits may be sued under ERISA § 502(a)(1)(B) in a claim for benefits. • Medical associations have broad standing to assert the claims of their medical providers (who typically rely on assignment of the plan participants’ rights to benefits). • Will make benefit claims seeking to enforce the Parity Act and ACA easier to pursue, may also make “systemic” litigation by provider groups against insurers who handle thousands of plans easier as well. ERISA Litigation Update 2015

  23. Workforce Realignment: “Pay or Play” & ERISA § 510 • Employer with more than 50 full time employees (those who work at least 30 hours a week) must either provide affordable/minimum value coverage to the full time employees or pay tax penalties, e.g., $2,000 per FTE. • ACA qualified plan may be richer and more expensive than benefits previously provided employees. • ERISA § 510 prohibits taking any adverse employment action for purpose of interfering with benefits. • What happens if cut a full-time employee with benefits below 30 hours so that do not have to provide benefits under an ACA-qualified plan? • Substantial discussion of these issues in restaurant and retail areas. ERISA Litigation Update 2015

  24. Workforce Realignment: Marin v. Dave & Busters • Marin v. Dave & Busters, Case no. 15-cv-3608 (S.D.N.Y. May 8, 2015). Class action complaint under ERISA § 510 on behalf of approximately 10,000 current and former Dave & Busters employees • Who were participants in an ERISA health insurance plan sponsored by Defendant • Whose hours were involuntary reduced following enactment of the ACA • Who allegedly suffered either loss of insurance coverage, or inferior health insurance following the reduction in hours ERISA Litigation Update 2015

  25. Workforce Realignment: Marin v. Dave & Busters • Plaintiff’s allegations: • D & B “engaged in a nationwide effort to ‘right size’ the number of full-time employees, thus permitting Defendant to avoid the costs associated with the ACA.” • Pre-ACA she worked 30-45 hours per week and hours were cut to 10-25 hours per week post-ACA • Management stated in a meeting that the cuts were made to adjust in the face of the ACA • Defendant’s plan required its workers to average at least 28 hours per week to be classified as a full-time employee and to be eligible for coverage causing her to lose coverage ERISA Litigation Update 2015

  26. Workforce Realignment: Marin v. Dave & Busters • Is Marin’s claim viable? • Structuring businesses to avoid payment of taxes • Common & permissible • “Pay or play” not a “play only” requirement • Facts likely very important • When did the restructuring occur? • Did anyone lose benefits as part of this restructuring? • What was the reason provided by the employer? • Major unresolved legal issues – whether ERISA 510 standards limit “pay or play” adjustments? ERISA Litigation Update 2015

  27. Health Care Costs as Proxy for Age Discrimination • Tramp v. Associated Underwriters, 2014 WL 4977396 (8th Cir. 2014). Plaintiff claimed she was terminated because of healthcare costs. Claimed: • Employer focused on impact of age in negotiating its health insurance premiums. • That she started receiving reprimands after she declined employer’s request to rely on Medicare instead of employer’s health insurance. • Eighth Circuit held health care costs may be proxy for age if employer treated them the same, and there was a fact issue as to whether she was retaliated against for refusing to decline employer-provided health insurance. ERISA Litigation Update 2015

  28. Some Good News: Using Plan Terms and SPDs To Lower Plan Costs & Limit Litigation Costs and Exposures

  29. Using Plan Terms and SPDs To Lower Plan Costs • US Airways v. McCutchen, 133 S. Ct. 1537 (2013). Enforcing plan’s reimbursement provision. • McCutchen injured in car accident; recovers money from third parties. SPD required plan be reimbursed for amounts received from third parties. • Because this was an “equitable lien by agreement” it created a contractual right to reimbursement once it was received. • Not subject to equitable defenses. • Agreement becomes the proper measure of the parties’ equities. • ERISA gives primacy to written plan requirements. • BUT absent clear language, common fund rule applied to deduct costs of McCutchen’s attorney to collect these funds. ERISA Litigation Update 2015

  30. Using Plan Terms and SPDs To Limit Litigation Costs and Exposures • Heimeshoff v. Hartford Life & Accident Ins. Co., 134 S. Ct. 604 (2013). Enforcing plan’s limitations period. • Plan required claims be filed within 3 years of the date that “proof of loss” was required to be submitted and “proof of loss” was due before plan’s administrative process can be completed. • In 2007, the Plan Administrator, issued a final denial of Plaintiff’s claim for benefits. • Plaintiff filed suit less than three years after Hartford’s adverse determination but more than three years after “proof of loss” was due. ERISA Litigation Update 2015

  31. Using Plan Terms and SPDs To Limit Litigation Costs and Exposures Heimeshoff (cont.): • Supreme Court affirms unanimously, holding that plan-imposed, contractual statutes of limitations are enforceable under ERISA if the period is not unreasonable or barred by statute. • This is true even if the statute of limitations starts to run before the cause of action accrues. • The Court concluded a limitations provision would not disrupt ERISA’s internal review process OR diminish the availability of judicial review to participants. ERISA Litigation Update 2015

  32. Using Plan Terms and SPDs To Limit Litigation Costs and Exposures Heimeshoff (cont.): • What is “reasonable”? Some cases support as short as two years from proof of loss. • If denying the benefit claim, the letter needs to provide clear notice to participants of contractual limitations period. • E.g., Mirza v. Ins. Adm. of America, Inc., No. 13-3535 (3d Cir. Aug. 26, 2015); Moyer v. Met Life, 762 F.3d 503, 505 (6th Cir. 2014). ERISA Litigation Update 2015

  33. Using Plan Terms and SPDs To Limit Litigation Costs and Exposures • Smith v. AEGON Cos. Pension Plan, 2014 U.S. App. LEXIS (6th Cir. Oct. 14, 2014). Enforcing plan’s venue provisions. • Pension claim that had wrongfully eliminated enhanced compensation benefits. Plan provision required suit be brought where plan was administered, in Cedar Rapids Iowa. • Rejecting view of DOL, Sixth Circuit holds that plan’s venue selection clause is enforceable. • Supreme Court asked for DOL’s view in cert petition of this case; has not granted or denied it yet. ERISA Litigation Update 2015

  34. Using Plan Terms and SPDs To Limit Litigation Costs and Exposures • Spinedex Physical Therapy v. United Healthcare, No. 12-17604, 2014 BL 313312 (9th Cir. 2014). Enforcing plan’s anti-assignment clause. • Medical provider sues numerous plans managed by United Healthcare, seeking higher reimbursements as an out-of-network provider. • Uses patient’s assignments to bring claims, even though does not seek to recover from the patient. • Court allows claims to proceed where had valid assignments, but dismisses claim against plan that contained an anti-assignment clause. ERISA Litigation Update 2015

  35. Using Plan Terms and SPDs To Limit Litigation Costs and Exposures • Spinedex Physical Therapy (cont.): • Spinedex consistent with other cases that have enforced plans’ anti-assignment provisions. This is also supported by McCutchen and Heimeshoff, which gives primacy to the terms of the plan. • For insurers and self-insured plans (or plans with large stop-loss insurance) anti-assignment provisions may be something to consider. • Otherwise a commercial medical provider with which the plan has no relationship or agreement can use assignments to seek to enforce what are often very high medical fees. ERISA Litigation Update 2015

  36. Using Plan Terms and SPDs To Limit Litigation Costs and Exposures • The next frontier – using arbitration provisions to limit ERISA litigation expenses and class exposures? • Federal Arbitration Act (“FAA”) is a federal pro-arbitration policy that has been embraced by the Supreme Court. • BUT ERISA has some quirks: • DOL regulation bars arbitration from being binding on claims for health and disability benefits. • ERISA § 502(a)(2) authorizes suits “on behalf of the plan.” Not clear whether this right can be waived. ERISA Litigation Update 2015

  37. Using Plan Terms and SPDs To Limit Litigation Costs and Exposures • ERISA and arbitration (cont.): • Class bars may work in some contexts, and for some claims. • But also need to consider whether want arbitrator to decide the claim – if the arbitrator gets it wrong, it is almost impossible to reverse through a court challenge. • Company culture and whether have arbitration requirements for other employment claims is also relevant to this analysis. ERISA Litigation Update 2015

  38. Other Items of Potential Interest: Tackett and Retiree Health; Amara and Expansion of ERISA Remedies

  39. Tackett and Retiree Health • M&G Polymers v. Tackett, 135 S. Ct. 926 (2015). End of Yard-Man presumption favoring retiree health benefits in collective bargaining context. Court rules “ordinary principles of contract law” apply. • BUT there is a real tension between majority and concurrence on how they think “ordinary principles of contract law” apply: • Majority suggests absent an explicit promise a court should not assume lifetime benefits. • Concurrence suggests ambiguity leads to extrinsic evidence. ERISA Litigation Update 2015

  40. Amara and Expansion of ERISA Remedies • Amara made monetary remedies available against fiduciaries who have breached their fiduciary duties. • Courts reading surcharge and reformation remedies broadly, increasing the stakes in fiduciary litigation. • One court (hopefully an outlier) noted that consequential or punitive damages may be available where malice or fraud is involved. D’Iorio v. Winebow, Inc., 2014 WL 7335466 (E.D.N.Y. Dec. 26, 2014). • Another court (Rochow, since reversed) awarded $3.6 million in surcharge in addition to the benefits awarded on the benefit claim. ERISA Litigation Update 2015

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