Ninth Circuit Concludes that San Francisco's “Pay or Play” Ordinance Is Not Preempted by ERISA
by Peter Marathas, Robert Rachal and Russell L. Hirschhorn
Description of the Ordinance
The Ninth Circuit’s Decision
The Ordinance Did Not Create an ERISA Plan
The Ordinance Does Not Relate to an ERISA Plan
The Ninth Circuit concluded that the Ordinance does not have a connection with an ERISA plan because it does not require any employer to adopt an ERISA plan, and it does not require any employer to provide specific benefits through an existing ERISA plan.
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Ninth Circuit Rules Claimant Not Required To Exhaust Issues During ERISA Claims Review
By Brian Neulander & Robert Rachal
[T]he majority determined that a plaintiff need only establish a plan’s final decision to deny benefits before bringing suit in federal court; new issues raised before a district court do “not retroactively erase [a plaintiff’s] prior effective exhaustion of administrative remedies.”
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Court Bars ESOP-Owned Company from Advancing Defense Costs of Officers Accused of ERISA Fiduciary Breach
By Robert Rachal
On the issue of whether it was proper to enjoin the company from advancing fees . . . the court concluded that such payment would violate ERISA § 410 because of the lack of recourse if defendants were found to have breached their fiduciary duties.
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Rulings, Filings and Settlements of Interest
- In Kennedy v. Plan Administrator for DuPont Savings and Investment Plan, 497 F.3d 426 (2007), the Fifth Circuit concluded that because a QDRO was never submitted to the plan when the Kennedys divorced, the plaintiff did not eliminate her interest in her ex-husband’s plan benefits. The court found that requiring the plan to recognize a waiver would conflict with ERISA by purporting to determine rights to pension plan benefits in a way that was not authorized by the QDRO, and therefore was not permitted by ERISA’s anti-alienation provision. The Supreme Court granted certiorari, No. 07-636, agreeing to decide whether a QDRO is the sole means by which a pension plan participant can assign his or her benefits in a divorce without violating the anti-alienation clause of ERISA. At oral argument, the Court questioned why the estate would want to limit its challenge to the Fifth Circuit's discussion of QDROs and ignore the plan documents rule. Under this rule, which has been adopted by many courts (and rejected by others), plan administrators are required to look only at plan documents on file in determining the rightful beneficiary of a participant's benefits. After oral argument, the Court requested additional briefing on the plan documents rule.
- In Frulla v. CRA Holdings, Inc., 2008 WL 4399440 (11th Cir. Sept. 30, 2008), the Eleventh Circuit held that a retiree medical plan providing lifetime benefits could not be amended to require monthly contributions from retirees, because the contributions would have the effect of reducing or modifying vested benefits. In so holding, the court rejected defendants’ argument that imposing a contribution requirement was a funding decision that does not modify or reduce benefits, and observed that “[b]ecause the level or existence of an employee contribution thus directly affects the value of the benefits received, we hold that not having to pay a contribution is a benefit of a health care plan.” The court was not persuaded by the fact that both parties acknowledged in their briefs that the plan sponsor, which was no longer actively engaged in business, was unable to make contributions to the plan and therefore the plan would run out of money “sooner, rather than later” if the monthly contributions from the retirees were deemed impermissible. In another case involving a plan sponsor that amended a retiree medical plan to increase the portion of the plan’s costs borne by retirees, the Northern District of Ohio in Moore v. Rohm & Hass, 2008 WL 449407 (N.D. Ohio Sept. 30, 2008), rejected defendants’ argument that there is a distinction between the vesting of retiree health benefits and the vesting of the cost of these benefits. The court held that “[i]f retiree health benefits are vested, those benefits cannot be changed, including changes to the cost of those benefits.”
- In Leister v. Dovetail, Inc., 2008 WL 4659364 (7th Cir. Oct. 23, 2008), the Seventh Circuit (Posner, J.) addressed the statute of limitations and remedies applicable to a small company’s failure to deposit funds into a participant’s 401(k) account. The court concluded that this violation could be remedied as a claim for benefits, holding that the benefits to which the participant was entitled were the assets that would have been in her 401(k) account had the defendants complied with their fiduciary duties. The court thus applied Illinois’s 10-year statute of limitations for written contracts (not ERISA’s 3- or 6- year statute of limitations for fiduciary breaches) to this claim. On estimating the investment return that would have been earned had the contributions been made, the court observed that Donovan v. Bierwith, 754 F.2d 1049 (2d Cir. 1985), should not be read to permit use of a return based on the most profitable investment allocation determined in hindsight, as this would engender a windfall; rather, the court noted an appropriate benchmark was the return made on the investment allocation actually used by the participant for the money that was in her account. Finally, the court reasoned that the tax benefits from investing in a 401(k) plan are part of the “benefits” provided by the 401(k) plan, and thus should be included in calculating the value the unpaid contributions would have had if the contributions had been paid as they should have been.
- In Orth v. Wisconsin State Employees Union Council 24, 2008 WL 4646051 (7th Cir. Oct. 22, 2008), the collective bargaining agreement in force when plaintiff retired required the employer to provide health insurance, with 90% of the premiums to be borne by the employer and 10% by retired employees from their sick-leave accounts. Nevertheless, the plan actually deducted 100% of the retired employees’ health insurance premiums from their sick-leave accounts. The Seventh Circuit concluded that the alleged modifications by subsequent dealings were not enforceable on an ERISA plan because they were not in writing. In so holding, the court rejected several arguments by defendants, including that that there was a latent ambiguity in the contract and that the existence of a collective bargaining agreement permitted the plan terms to be modified by oral subsequent dealings among the employer and the union.