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					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.       Are there strings attached
                                  to that retirement watch?
• Further alleged conditions:
     (1) no moonlighting in similar work;
     (2) continued service until retirement at 62.
  ERISA Plan v. Contract:
 What’s At Stake for Parties?
• ERISA or contract law?
• Federal jurisdiction?
• ERISA vesting rules
  for pension benefits?       What’s under the hood of this
                                lawsuit for a pension?

• ERISA anti-forfeiture rule for pension benefits.
• Potential effect on Bernie’s lump sum promise?
 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,
Does a benefit plan
                        beneficiaries, source of
require a “fund?”       financing, procedures?
                      • Effect of lack of writing?
         Further Reflections
         On Contract v. Plan
• Bilateral negotiation v.
  unilateral establishment.
• Participation by acceptance
  v. participation by member-
  ship in defined class.
• Individual v. class-based,     A plan creates a system for uniform
                                  treatment of a class of employees
  standardized terms.
• A different set of rules for class-wide modification.
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,
Vacation pay is a benefit, but does
                                        especially workers’ comp.
  it come from an ERISA plan?           benefits.
                                      • Public employee plans.
            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?
                               Why give any more than a
• Tax incentives?               watch at retirement?

• Self-interest of management, and effect of ERISA
  “non-discrimination” rules?
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 vested
  benefits.
• No diminution of vested
  benefits by amendment.
• No interference with            Under ERISA, you can
  “attainment of rights.”           take it with you.
    ERISA & Amending Acts
    And 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 Benefits
 Continuation Coverage Rules
• Medical benefit is welfare benefit;    COBRA
  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.
  Securing Medical Benefits
   Bridging Plan Coverage
• Health Insurance Portability     HIPAA
  & Accountability Act
  (HIPAA).
• Restricts waiting period
  for new employee enrollment.
• Limits on pre-existing
  condition exclusions in insurance policies.
  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. Bruch
   Who Has the Final Say?
• Plan: Benefits if services
  discontinued because of
  “reduction of workforce.”
• Employer interpretation?
• Employee interpretation?
                               Is Firestone’s decision
• An ERISA plan?                puncture-resistant?


• Significance of ERISA coverage?
    Plan Decision-Making
     And Judicial Review
• What common law model
  is the best analogy?
• Administrator’s duty
  in deciding claims
  under this model?
• Appropriate level
  of judicial review?      The Administrator: Agent for
                          Employer? Or for Beneficiaries?
     Judicial Review After
     Firestone Tire v. Bruch
• How can employer change
  the level of judicial review?
• The problem of conflict
  of interest: How does it
  affect judicial review?
• Factors affecting severity      Will a manager/administrator
  of the conflict of interest?     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 terms
  of other document?            Will Fisher Sr. rest in peace?



• Did VP of Human Resources have discretion to
  interpret the documents? Conflict of interest?
     Special Issues for Health
    Insurance Benefit Decisions
                        • Usual administrator: Insurer.
                        • Typical issues: “Medically
                          necessary?” “Experimental?”
                        • Can administrator overrule
                          treating doctor?
                        • Practical barriers to challenging
Are insurers bound by
the Hippocratic Oath?
                          administrator’s decision?
                        • State medical review laws.
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 of
  beneficiaries.
• Reporting & disclosure duties.
• Other common law duties of
  a fiduciary?                        Is the administrator
                                       a guardian angel?
  Is the Employer a Fiduciary
   With 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.
                                           BENEFIT CLAIMS HERE


• No, when it creates, modifies
  or terminates plan (employer       Is the employer a fiduciary?
  can be selfish).                   Sometimes. Sometimes not.
   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.      Not shining for employees.

• Plan: Shift losing operations to new subsidiary.
• Encourage employees to to accept transfer.
• Why not just close losing operations or plans?
 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 with
  predictions 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?              Must an administrator be on
                                  watch for beneficiaries?
• Reasons for or against duty?
Interference & Retaliation




When an Employer Acts as an “Employer”
 The Employer’s Dual Roles
  Employer v. Administrator
                                      • As administrator, owes
                                        fiduciary duty to serve
                                        beneficiaries exclusively.
                                      • As employer, owes no
                                        fiduciary duty. Can be
                                        selfish.
 Which hat was employer wearing
when it took the challenged action?
                                      • Any duties limiting
                                        actions as employer?
   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
Personal fouls for an employer
    acting as an employer.
                                   the plan.
 Focus on Illegal Retaliation:
Motivated by Protected Conduct?
                        • Protected Conduct:
                          Exercising right, acting to
                          enforce or aid enforcement.
                        • Seeking information.
                        • Filing claim.
    Did he engage in
   protected conduct?
                        • Filing appeal or lawsuit, or
                          reporting violation.
Focus on Illegal Interference:
Motivation to Prevent Benefits?
• Preventing access to
  information, documents.
• Impeding claim processing.
• Terminating, modifying plan?
  See next slide.                  Did the employer put
                                     up roadblocks?

• Discharging employee to
  avoid benefit accrual, vesting? Two slides ahead.
  Interference by Modification
   Or 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 plan
  modification/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.”   Which plant will we close?


• Transfers for “able-bodied” to report in 14 days
  (Mich. to NC) with no seniority, though local
  workforce insufficient to satisfy labor needs.
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 employer       Selective elimination of “expensive”
                                       workers by selective layoffs?
  to maintain unprofitable unit?
• More likely claims: Restrictive transfer policy;
  ADEA, ADA and NLRA claims.
 Lessard v. Applied Risk




         Selling a division?
Or shaking out expensive employees?
The Sale in Lessard: Designed
   To Leave Her Behind?
• How might “old” business be
  worth more to “new” owner?
• The sale and the employees:
  Medical v. non-medical leave.
• How did difference in treatment
  tend to impact costly workers?      Left behind?

• Risk of subterfuge for unloading costly workers.
    The Limits of the Court’s
      Solution in Lessard
• Could seller terminate
  medical leave plan?
• Amend plan to limit
  extended coverage?
• Sell assets, terminate plan,
  let buyer rehire employees?    “Too Clever By Half?”
                                 Or not clever enough?
• Remember practical limits
  of each of these solutions.
Discriminatory Coverage


        SELECTED EMPLOYEES




  Can an Employer Avoid Costly
Employees in the Design of Its Plan?
  Recap: Why Do Employers
   Provide Benefits At All?
• Employer provided
  benefits are voluntary.
• Incentives: Loyalty,
  tax advantages, unions
  as 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?     A Plan for the “In Crowd” Only?

• Some participants must pay more or receive less?
Overview of Limits on Choosiness
When 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.

 With whom must management
                             • Independent contractors?
      share the umbrella?
                             • No non-discrimination rules
                               for welfare benefits.
Other Federal Laws Prohibiting
Discrimination in Employment
                              • Title VII: Sex discrimination
                              • Pregnancy Discrimination Act
                                (amending Title VII)
                              • Age Discrimination in
                                Employment Act

 Is he entitled to the same
                              • Americans with Disabilities Act
medical and life insurance?
General Rule : Do Not Segregate
 By Prohibited Classification
 Don’t Look at this Graph When Designing Your Plan!!!!




           Life insurance cheaper for women; pension cheaper for men.
   Special Problems for Costs
     Related to Pregnancy
• Remember: employer not
  required to offer any plan.
• Plan, if offered, must not
  discriminate based on sex.
• What about discrimination
  based on “pregnancy?”         Doctor delivers 9 lb. medical bill.



• Early equal access theory: No discrimination if
  men & women covered for same conditions.
 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
                                     A heart attack: Sort of
  similarly disabling conditions.”      like pregnancy?


• How does plan cover other temporarily disabling
  conditions? Compare with 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 coverage
  of pregnancy of spouses;
  benefits for male employees
  are inferior.
        Saks
          v.
 Franklin Covey

Assisted Reproduction,
Prevented Reproduction,
          &
 Assisted Intercourse
                          Must the Health Plan Pay?
  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 access
  theory 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 same
                                 coverage as for similarly
                                 disabling condition.
                               • Court: PDA protects only
                                 conditions related to pregnancy
                                 and unique to women.
                               • Infertility experienced and
Maybe his condition required     impregnation needed by both
 her surgical impregnation.
                                 women and men.
   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).
Does he need life insurance?
Can his employer afford it?
                               • Exceptions for some age-based
                                 distinctions in benefits.
  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
What if she becomes disabled,
 but isn’t able to “retire?”
                                  is eligible.
    Disability Discrimination
     The 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.
 Would denial of coverage for
                                   • Plan covers mental health
mental health be discrimination?     except for bipolar disorder.

        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
                               ERISA’s long preemptive shadow.
  to federal court.
• Complete preemption: non-application of well-
  pleaded complaint rule if claim is “within the
  scope” of ERISA’s enforcement provisions.
           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?

				
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