Abstract
A recent case from a federal district court in Tennessee reminds employers that they should familiarize themselves with the basic tenets of the Employee Retirement Income Security Act (ERISA) before providing welfare benefits to their employees. In that case, the employer unknowingly created an ERISA plan just by allowing its employees to buy individual insurance policies and obtain a group discount that they would not have received but for the employment relationship. Unknowingly creating an ERISA plan thus exposed that employer to a host of ERISA issues, including reporting and disclosure requirements, fiduciary responsibilities, and monetary penalties for violating those requirements and responsibilities.
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References
1.
Alexander, 2009 U.S. Dist. LEXIS 97093 at *2.
2.
Ibid.
3.
Ibid. at *2-3.
4.
Ibid. at *4.
5.
Ibid. at *5.
6.
Ibid. at *5-6.
7.
Ibid. at *6.
8.
Ibid. at *7-8 (citing 29 U.S.C. § 1144(a); Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 56-57 (1987), overruled in part on other grounds sub. nom Ky. Ass’n of Health Plans, Inc. v. Miller, 538 U.S. 329 (2003)).
9.
29 U.S.C. § 1002(1).
10.
Donovan v. Dillingham, 688 F.2d 1367, 1371 (11th Cir. 1982) (en banc).
11.
Ibid. at 1373; accord Int’l Resources, Inc. v. N.Y. Life Ins. Co., 950 F.2d 294, 297 (6th Cir. 1991) (citing Donovan, 688 F.2d at 1373).
12.
Alexander, 2009 U.S. Dist. LEXIS 97093 at *14-15.
13.
Ibid.
14.
Ibid.
15.
Randol v. Mid-West Nat’l Life Ins. Co. of Tenn., 987 F.2d 1547, 1550 n. 5 (11th Cir. 1993) (citing Donovan, 688 F.2d at 1374).
16.
29 U.S.C. § 1002(1).
17.
Randol, 987 F.2d at 1551 n5 (citing Donovan, 688 F.2d at 1374).
18.
Stern v. Provident Life & Acc. Ins. Co., 295 F. Supp. 2d 1321, 1324 (M.D. Fla. 2003) (citing Letner v. Unum Life Ins. Co. of Am., 203 F. Supp. 2d 1291, 1297 (N.D. Fla. 2001)).
19.
Donovan, 688 F.2d at 1373.
20.
Jaffe v. Provident Life & Acc. Ins. Co., 2000 U.S. Dist. LEXIS 4689 at * (S.D. Fla. Mar. 21, 2000).
21.
Stern, 298 F. Supp. 2d at 1326.
22.
See, e.g., Mass. Cas. Ins. Co. v. Reynolds, 113 F.3d 1450, 1453 (6th Cir. 1997) (employer established plan through purchase of individual disability policies for employees); Madonia v. Blue Cross & Blue Shield of Va., 11 F.3d 444, 447 (4th Cir. 1993) ("Employers may easily establish ERISA plans by purchasing insurance for their employees").
23.
See, e.g., 26 C.F.R. § 1.105-1(d).
24.
Anderson v. Unum Provident Corp., 369 F.3d 1257, 1264 (11th Cir. 2004) (citing Meredit v. Time Ins. Co., 980 F.2d 352, 354 (5th Cir. 1993)); also see Randol, 987 F.2d at 1551 (employer that did not intend to create ERISA plan and failed to comply with ERISA’s reporting requirements still deemed to have established plan through purchase of insurance); Lasche v. George W. Lasche Basic Profit Sharing Plan, 111 F.3d 863, 867 (11th Cir. 1997) ("A person’s subjective intent is irrelevant to whether [ERISA] requirements were followed").
25.
Anderson, 369 F.3d at 1263-64.
26.
Williams v. Wright, 927 F.2d 1540, 1545 (11th Cir. 1991).
27.
Ibid. More fundamentally, the plan in the Alexander case, in fact, did cover a "class of employees" because individual disability policies (presumably) were provided to all physician employees of the group alike.
28.
29 C.F.R. § 2510.3-1(j); accord Memorial Hosp. Sys. v. Northbrook Life Ins. Co., 904 F.2d 236, 241 n6 (5th Cir. 1990) (citing 29 C.F.R. § 2510.3-1(j)); Kanne v. Connecticut Gen. Life Ins. Co., 867 F.2d 489, 492 (9th Cir. 1988) (citing 29 C.F.R. § 2510.3-1(j)).
29.
Alexander, 2009 U.S. Dist. LEXIS 97093 at *11-12.
30.
Compare, e.g., Waks v. Empire Blue Cross/Blue Shield, 263 F.3d 872, 878 (9th Cir. 2001), Demars v. CIGNA Corp., 173 F.3d 443, 448-50 (1st Cir. 1999), and Mimbs v. Commercial Life Ins. Co., 818 F. Supp. 1556, 1561-62 (S.D. Ga. 1993) (all supporting that the act of conversion strips coverage of its ERISA status), with Painter v. Golden Rule Ins. Co., 121 F.3d 436, 439-40 (8th Cir. 1997), Howard v. Gleason Corp., 901 F.2d 1154, 1157-58 (2d Cir. 1990), Beal v. Jefferson Pilot Ins. Co., 798 F. Supp. 673, 675 (S.D. Ala. 1992), and Nechero v. Provident Life & Acc. Ins. Co., 795 F. Supp. 374, 380 (D.N.M. 1992) (all supporting that former group policies once converted remain governed by ERISA).
31.
Alexander, 2009 U.S. Dist. LEXIS 970903 at *20-26.
32.
29 C.F.R. § 2520.102-3(a), (b), (f).
33.
Among other things, the summary plan description (SPD) must include in layperson’s language information about the following: when and how employees become eligible to participate, the source of contributions, claim procedures, and a participant’s basic rights and responsibilities under ERISA. See 29 C.F.R. §§ 2520.102-1, 2520.102-2(b).
34.
SPDs, for example, must be provided to employees within 120 days after the effective date of a new plan or the date that a plan first becomes subject to ERISA disclosure requirements. 29 C.F.R. § 2520.104b-2(2). Employees must receive a copy of the SPD within 90 days of becoming participants. 29 C.F.R. § 2520.104b-2(1). SPDs must be distributed to participants within 120 days of the plan’s effective date. 29 C.F.R. §2520.104b-2(2). Revised or updated SPDs must be given to participants every 5 years. 29 C.F.R. §§ 2520.104(b)(1), 2520.104b-2(b)(1)(ii). A summary of material modifications (SMM; or an updated SPD) must be distributed within 210 days after the adoption date of a material change to the plan. 29 C.F.R. §2520.104b-2. If a material change to a group health plan results in a loss or reduction of benefits, the SMM must be provided employees within 60 days after the modification or change is adopted. 29 C.F.R. §2520.104b-3. Plan administrators also must furnish annually to each participant a summary annual report meeting certain requirements as well. 29 C.F.R. §§ 2520.104b-10. In addition, a plan administrator must provide, within 30 days on a participant’s or beneficiary’s written request, a copy of the latest SPD, annual report, terminal report, bargaining agreement, trust agreement, contract, or other instrument under which the plan is established or operated. 29 U.S.C. §§ 1022, 1024(b).
35.
29 U.S.C. § 1132(c).
36.
"The Department of Labor, Internal Revenue Service, and the Pension Benefit Guaranty Corporation jointly developed the Form 5500 series so employee benefit plans could utilize the Form 5500 to satisfy annual reporting requirements under Title I and Title IV of ERISA and under the Internal Revenue Code." Employee Benefits Security Administration, U.S. Department of Labor, Annual Return/Report 5500 Series Forms and Instructions, http://www.dol.gov/ebsa/5500main .html (retrieved December 18, 2009). Form 5500s seek information about the plan, including, among other things, the plan name, plan year, plan sponsor, plan number, participants, insurance costs, and financial data. See ibid.
37.
"Fully insured or unfunded welfare plans covering fewer than 100 participants at the beginning of the plan year are eligible for a filing exemption." Employee Benefits Security Administration, U.S. Department of Labor, Form 5500 Filing Tips for Pension Plans, Welfare Plans and Direct Filing Entities, http://www.dol.gov/ebsa/form5500tips .html (retrieved December 18, 2009). It is unclear from the Alexander opinion whether the plan would have been exempt from the filing requirement.
38.
The IRS may assess a penalty of $25 per day, up to $15,000, for failure to file an annual report. 26 U.S.C. § 6039D. Also, the Department of Labor may assess a penalty of up to $1,100 per day for such failure. 29 U.S.C. § 1132(c)(2); also see 29 C.F.R. §§ 2520.502c-2(c), (d), (e), and (f) (regarding Department of Labor’s notice of intent to assess penalty).
39.
29 U.S.C. § 1104(a)(1)(A).
40.
See Brock v. Hendershott, 840 F.2d 339, 342 (6th Cir. 1988) (breach of duty of loyalty where fiduciary engaged in self-dealing). But cf. Siskind v. Sperry Retirement Program, 47 F.3d 498, 505-07 (2d Cir. 1995) (ERISA fiduciaries not prohibited from taking actions that incidentally benefited employer).
41.
29 U.S.C. § 1104(a)(1)(B); 29 C.F.R. § 2550.404a-1(b)(1).
42.
29 C.F.R. § 2550.404a-1(b)(1).
43.
See, e.g., In re Unisys Savings Plan Litig., 173 F.3d 145 (3d Cir. 1999) (plan’s investment committee did not breach duty of prudence in connection with the purchase of guaranteed insurance contracts even though the insurer later failed where a reasonable investigation of the investment options had been undertaken), abrogated on other grounds by LaRue v. DeWolff, Boberg & Assocs., 552 U.S. 248 (2008), as recognized in In re Merck & Co., No. 05-1151, 2009 U.S. Dist. LEXIS 10243 at *17-20 (D.N.J. Feb. 10, 2009).
44.
29 U.S.C. § 1104(a)(1)(D).
45.
Ibid.
46.
29 U.S.C. § 1102(21); 29 C.F.R. § 2510.3-21(c).
47.
Alexander, 2009 U.S. Dist. LEXIS 97093 at *26.
48.
Ibid. at *27.
49.
Holland v. Slack, 772 F.2d 1140, 1147 (4th Cir. 1985), aff’d sub nom. Brooks v. Burlington Indus., Inc., 477 U.S. 901 (1986).
50.
Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504, 523 (1981).
51.
Holland, 772 F.2d at 1146 (quoting Cal. Hosp. Ass’n v. Henning, 569 F. Supp. 1544, 1546 (C.D. Cal. 1983)).
52.
29 U.S.C. § 1132(a); Dedeaux, 481 U.S. at 52-54.
53.
See Shaw, 463 U.S. at 98 ("Congress used the words ‘relate to’ in § 514(a) in their broad sense").
54.
See ibid. at 99 & n20 (citations omitted).
55.
Dedeaux, 481 U.S. at 54.
56.
Howard v. Parisian, Inc., 807 F.2d 1560, 1563-64 (11th Cir. 1987); Phillips v. Amoco Oil Co., 799 F.2d 1464, 1469-70 (11th Cir. 1986).
57.
See Mullenix v. Aetna Life and Cas. Ins. Co., 912 F.2d 1406, 1412-13 (11th Cir. 1990) (ERISA preempts state law claims where the alleged wrongful conduct is contemporaneous with the refusal to pay benefits and the claims were intertwined with the refusal to pay those benefits).
58.
See, e.g., Walker v. S. Co. Servs., 279 F.3d 1289, 1293 (11th Cir. 2002) ("ERISA preempts the Alabama tort of bad faith" (citing Butero v. Royal Maccabees Life Ins. Co., 174 F.3d 1207, 1215 (11th Cir. 1999))).
59.
See, e.g., Merritt v. Confederation Life Ins. Co., 881 F.2d 1034, 1035 (11th Cir. 1989) (per curiam); Byrd v. MacPapers, Inc., 961 F.2d 157, 160 (11th Cir. 1992) (citing Mason v. Continental Group, Inc., 763 F.2d 1219, 1227 (11th Cir. 1985)).
60.
Perrino v. S. Bell Tel. & Tel. Co., 209 F.3d 1309, 1315-17 (11th Cir. 2000).
61.
Makar v. Health Care Corp. of Mid-Atlantic, 872 F.2d 80, 83 (4th Cir. 1989).
62.
Ibid. (citing Amato v. Bernard, 618 F.2d 559, 567 (9th Cir. 1980)).
63.
Denton v. First Nat’l Bank of Waco, Tex., 765 F.2d 1295, 1300 (5th Cir. 1990); also see Challenger v. Local 1 Int’l Bride, Structural & Ornamental Ironworkers, 619 F.2d 645, 649 (7th Cir. 1980) ("To make every claim dispute into a federal case would undermine the claim procedure contemplated by the Act").
64.
See Mason v. Cont’l Group, 763 F.2d 1219, 1227 (11th Cir. 1985).
65.
Ibid.
66.
See Counts v. Am. Gen. Life & Acc. Ins. Co., 111 F.3d 105, 109 (11th Cir. 1997) (affirming summary judgment where plaintiff failed to appeal initial benefits determination); Variety Children’s Hosp. v. Century Med. Health Plan, 57 F.3d 1040, 1042 (11th Cir. 1995) ("We have repeatedly held that plaintiffs must exhaust their administrative remedies under a covered benefits plan prior to bringing an ERISA claim in federal court" (citations omitted)); Springer v. Wal-Mart Assocs. Group Health Plan, 908 F.2d 897, 899-900, 902 (11th Cir. 1990) (remanding action with instructions to dismiss where plaintiff did not seek administrative review of plan’s decision).