Court Rejects Equitable Exception to MPPAA’s ‘Pay Now, Dispute Later’ Regime

A withdrawing employer must make withdrawal liability installment payments during the pendency of an arbitration proceeding contesting the existence of withdrawal liability, a federal court has affirmed, rejecting the employer’s attempt to recognize an equitable exception to the general “pay now, dispute later” requirement. Boilermaker-Blacksmith National Pension Trust v. PSF Industries, No. 18-2467-JWL (D. Kan. Nov. 27, 2019).

Under the Multiemployer Pension Plan Amendments Act (MPPAA), an employer that withdraws from a multiemployer pension plan must make withdrawal liability installment payments in an amount determined under the statute. Under MPPAA, disputes between a fund and an employer must be resolved by arbitration. It also requires the employer to continue to make payments until an arbitrator has finally resolved the dispute. This last requirement is referred to as MPPAA’s “pay now, dispute later” provision.

In this case, the employer permanently ceased making contributions in 2017. The fund demanded withdrawal liability in excess of $16 million. The employer disputed the existence and amount of withdrawal liability by demanding arbitration. While arbitration is still pending, the employer made one installment payment and then failed to make subsequent payments.

When the fund sued to collect the delinquent payments, the employer’s sole defense was that the court should recognize an equitable exception to the pay now, dispute later provision. The employer claimed that entitlement to this exception should be based on its likelihood of success in the underlying arbitration (which was ongoing) and the irreparable harm that would result from having to make these payments.

The court reviewed other Circuit court precedent on point, citing with approval the Sixth Circuit’s holding in Findlay Truck Line, Inc. v. Central States, Southeast and Southwest Areas Pension Fund, 726 F.3d 738 (6th Cir. 2013) in holding that the employer must make the installment payments.

The court noted that the plain language of the statute (“withdrawal liability shall be payable … notwithstanding any request for review or appeal”) requires employers to make withdrawal liability payments without exception. It also found that its holding comported with the Congressional intent in protecting funds from “undercapitalized or financially precarious employers.”

The court then looked to other Circuit courts that had recognized an equitable exception, finding that those courts (the Fifth and Seventh Circuits) had conditioned the exception on an affirmative showing by the employer “that the pension fund lacks a colorable claim” for withdrawal liability. Absent any allegation that the fund’s claim was frivolous, the court denied the employer’s request for an equitable exception to the pay now, dispute later requirement.

MPPAA is a highly detailed and complex statute, and counsel experienced with the statute is essential to the defense of any claim for withdrawal liability. PSF Industries is another example of the statute’s inherent pro-fund bias and the reluctance of most courts to diverge from these parameters. Please contact the author or any other Jackson Lewis attorney with whom you work regarding this case or any withdrawal liability issues.

Judicial Trend Away from Recognizing Equitable Remedies for Benefit Claims under ERISA.

A court in Florida has declined to expand the remedies available under a claim for benefits due under 29 U.S.C. § 1132(a)(1)(B) of ERISA. Keys v. Bell, 2019 U.S. Dist. LEXIS 195505 (M.D. Fla. 2019). The court dismissed the plaintiff’s claim for “equitable estoppel by silence” under that provision of ERISA’s civil remedies.

This supports the trend in other courts following the U.S. Supreme Court’s 2011 decision in CIGNA Corp. v. Amara, which marked firm boundaries for litigation of claims under § 1132(a)(1)(B) versus under § 1132(a)(3) of ERISA. Amara strongly signaled that claims under § 1132(a)(1)(B) rise and fall on the terms of the plan and are to be litigated under principles of the law of contracts. Equitable principles (such as estoppel, reformation, and surcharge) are available to provide relief under § 1132(a)(3), but only where the plaintiff can demonstrate a claim under § 1132(a)(1)(B) would provide inadequate relief because of the inequitable conduct of the defendant.

Plaintiff Tyrone Keys was an NFL defensive lineman from 1983 until 1989, when he retired because of football-related injuries. Keys participated in the Bert Bell/Pete Rozelle NFL Player Retirement Plan, which originally offered three types of disability benefits: (1) Line of Duty (LOD) Benefits available to NFL players demonstrating “substantial disablement” because of injuries incurred while playing for the NFL but who are not otherwise totally disabled; (2) Football Degenerative Total and Permanent (Football T&P) benefits, available to former players demonstrating total disability because of injuries incurred while playing for the NFL; (3) Inactive T&P benefits, available to former NFL players demonstrating total and permanent disability because of circumstances unconnected to playing for the NFL. The Plan’s Retirement Board is the ultimate decisionmaker for disputed claims.

Keys submitted, and was approved for, a claim for LOD benefits in 1991. Keys received LOD benefits for the full five-year period available under the Plan. His request that his claim be converted to one for Football T&P benefits was denied in 1997. A car accident in 2002 aggravated Keys’ football injuries. In 2003, Keys again applied for Football T&P Benefits. The Board at first approved Keys for Inactive T&P benefits, but, after an appeal, the Board granted Keys’ claim for Football T&P benefits retroactively to January 2004. Keys continued to receive benefits over the next 13 years, although there were several denials and appeals during that period.

In 2011, the Plan’s benefit structure was reorganized. Football Degenerative T&P benefits were thereafter designated as “Inactive A T&P benefits.” Inactive T&P benefits were re-designated as “Inactive B T&P benefits.” Keys received benefits under both the A and B classifications for a time.

In August 2017, the Board determined Keys was never entitled to Inactive A T&P benefits, because it had concluded the 2002 accident, which the Board said it did not know of until its recent review of Keys’ records for his Social Security Disability benefits, was the proximate cause of disability after the accident. The Board concluded Keys had been overpaid by $831,488.28 and that all of Keys’ Inactive B T&P benefits would be retained until the overpayment was recovered, leaving Keys with no benefit payment at all. The plaintiff’s appeal was denied and Keys filed suit.

Keys asserted under 29 U.S.C. § 1132(a)(1)(B) of ERISA: (1) a claim for a declaration of rights under the Plan; (2) a claim for benefits due under the plan; and (3) a claim for equitable estoppel based on silence. The latter was on the theory the Board knew, or should have known, about the accident long before bringing it up to deny Keys’ claims in 2017, and so the Board should be estopped from ending Keys’ Inactive A T&P benefits and from recouping the alleged overpayment against his Inactive B T&P benefits.

In considering the Plan’s motion to dismiss the estoppel claim, the court noted the Eleventh Circuit’s adoption, in 1994, of “a very narrow common law doctrine” of equitable estoppel under §1132(a)(1)(B) claims, “where the plaintiff can show that (1) the relevant provisions of the plan at issue are ambiguous, and (2) the plan provider or administrator has made representations to the plaintiff that constitute an informal interpretation of the ambiguity.” (The Eleventh Circuit’s limited estoppel remedy appears to be a holdover from pre-Amara days and may well be overruled on that basis soon.) Keys agreed his theory of “estoppel by silence” did not fit within that narrow exception but insisted such a claim should be adopted because it was needed to ensure participants can obtain relief for plan administrators’ unfair, bad faith conduct.

The court, however, was not persuaded that Keys would be barred from relief if he could not assert a claim for estoppel by silence under § 1132(a)(1)(B). It observed that Keys’ estoppel by silence claim “closely resembles a claim for breach of fiduciary duty, a sometimes-permissible alternative claim under § 1132(a)(3)(B).” Granting the motion to dismiss, the court concluded, “The fact that Keys, who is the master of his complaint, chose not to bring a claim that might have provided other ‘appropriate equitable relief’ under § 1132(a)(3)(B) does not require the Court to strain to adopt a new theory of law, particularly when that theory appears at odds with prior precedent.”

Stimulating Consumerism in Health Care By Revealing Costs

When is the last time one of your employees asked how much an in-network physician’s visit would cost?  How much does a blood test cost at the hospital to which your doctor referred you, compared to the same blood test at another facility you could use?  Why haven’t consumers who spend hours shopping for the best deal online for a pair of shoes been shopping that way for their health care?  Some might say it’s because (1) very few of us second-guess the diagnosis or treatment referrals of personal physician and (2) perhaps more important, apathy, since someone else pays for most of the cost of our health care (an insurer, the government, an employer’s group health plan).

Many have no idea how much the physician’s visit will cost before going to the appointment, much less how much the blood test or MRI the doctor orders will cost.  If we pay a flat copayment for prescription drugs, most of us have no clue about the actual cost of the drug (which might actually be lower than the copayment – surprise!).  The truth is, we’ve been paying for our ignorance by paying more every year for health coverage – either by paying more in health insurance premiums or self-insured employer group health plan cost contributions.

The current condition of pervasive health care cost ignorance may change in the next couple years, if the Trump administration has its way.  Last week, to further President Trump’s Executive Order 13877 (June 24, 2019, calling for up front health cost transparency), the Departments of Health and Human Services (HHS), Labor (DOL), and Treasury (IRS) issued a “Transparency in Coverage” proposed regulation that would require most employer-based group health plans and health insurance issuers to disclose price and cost-sharing information to enrollees up front.  (For a quick read, see the fact sheet.)  The Transparency in Coverage rule proposes to impose two new disclosure requirements on employer-sponsored group health plans and health insurers in the group and individual markets.  First, group health plans and health insurers must provide enrollees with cost-sharing information for a covered item or service from particular providers using a self-service tool provided by the plan or insurer on an internet website.  The required disclosures must include estimates of participants’ cost-sharing liability for covered items or services furnished by specific health providers.  Second, plans and insurers also must disclose (using machine-readable files) the negotiated rates for in-network health providers and amounts the plan or insurer has allowed for items or services furnished by out-of-network providers.  Comments are due on the proposed Transparency in Coverage rule by January 14, 2020.

On the same day the agencies issued the Transparency in Coverage proposed rule for public comment, the HHS issued its “Hospital Cost Transparency” final rule requiring hospitals to provide clear, accessible information about their standard charges for the items and services they provide beginning in 2021.  (For the cliff’s notes version of this one, check out the fact sheet.)  This includes the amount the hospital will accept in cash from a patient for an item or service, and the minimum and maximum negotiated charges for 300 common “shoppable” services.  Shoppable services are services that patients can schedule in advance like x-rays, outpatient visits, imaging and laboratory tests, or bundled services like a cesarean delivery, including pre- and post-delivery care.  The Hospital Cost Transparency rule includes some enforcement teeth too:  civil monetary penalties of $300 per day among other enforcement tools.

Pray tell, if health care providers, health insurers and group health plan third-party administrators can pay claims and issue explanations of benefits after we’ve incurred health care expenses, why couldn’t they disclose those costs and covered benefit amounts before we incur the health care expenses?  Assuming the Hospital Cost Transparency rules survive the inevitable legal challenges and the Transparency in Coverage rule is finalized, will more information about the cost of health care result in better personal health decision-making?  We’re taught from a very young age to brush and floss and not eat too much sugar; to get fresh air and exercise and not be sedentary; that smoking causes lung cancer, too much alcohol causes liver damage, and too much fat causes heart disease.  Still, many among us choose to eat, drink, and otherwise live in ways that reflect astonishingly counter-intuitive personal health decisions.  More information may not necessarily result in the decision-making changes the Trump administration expects … but there’s always room for healthy optimism.

DOL Proposed NEW Electronic Disclosures Rule

Image result for ERISA furnish disclosuresEmployers frustrated with the cumbersome rules and added expenses for furnishing plan documents, summary plan descriptions, notices, and certain other communications may soon get some added relief, at least with respect to their retirement plans. In response to President Donald J. Trump’s Executive Order 13847, Strengthening Retirement Security in America, the U.S. Department of Labor announced a proposed rule to allow online retirement plan disclosures.

According to U.S. Secretary of Labor Eugene Scalia, the DOL’s proposed rule could help “save billions of dollars in costs for the U.S. economy” by “eliminat[ing] unnecessary burdens while furthering the needs of the wage earners, job seekers, and retirees of the United States.” According to the proposed rule, the DOL believes its policy objectives may be best advanced through adoption of a “notice and access” structure, similar to that previously adopted by the Department in FAB 2006-03. In short, this means that plan participants would be notified that information is available online, including instructions for how to access the disclosures and their right to receive paper copies of disclosures.

Some features of the proposed rule include:

    • A new safe harbor. The proposed rule would not replace or modify the existing rules for electronic disclosures. It would add a new safe harbor. And, administrators who choose to rely on the proposed rule would continue to be subject to applicable content, timing, and other provisions.
    • Pension plans only. The proposed rule currently applies only to pension benefit plans as the DOL currently is reserving application of the rule to welfare benefit plans. We suspect many employers will be disappointed considering welfare plan disclosures can be far more voluminous.
    • Covered individuals. Retirement plan disclosures under the proposed rule could be sent to “covered individuals” -participants, beneficiaries, or other individuals entitled to covered documents and who provide an electronic address. This could include the employer-provided email or a personal email account, among other options.
    • Covered documents. The new safe harbor can be applied to furnish any document that the administrator is required to furnish pursuant to Title I of ERISA for a pension benefit plan, except any document that must be furnished upon request, such as under ERISA Sec. 104(b). Examples of documents that can be furnished in this manner include a summaries of material modification or blackout notices.
    • Notice of internet availability. In general, administrators must provide a notice of internet availability for each covered document they plan to provide under the new safe harbor. So, if there are eight different documents, eight different notice of internet availability must be provided. However, there are rules for consolidating these notices.
    • Timing of notice of internet availability. Administrators must furnish notices of internet availability at the time the covered document that is the subject of the notice is made available on the website. Thus, for example, if pension benefit statements must be furnished no later than April 15th of a given year, the administrator could satisfy that obligation by furnishing to covered individuals a notice of internet availability on April 15th and ensuring that the covered document is accessible on the website on that date.
    • Content of notice of internet availability. The notice must include: (i) a prominent statement, such as a subject line that reads, “Disclosure About Your Retirement Plan;” (ii) a statement that, “Important information about your retirement plan is available at the website address below. Please review this information;” (iii) a brief description of the covered document; (iv) the website address where the covered document is available; (v) a statement of the right to request and obtain a paper version of the covered document, free of charge, and an explanation of how to exercise this right; (vi) a statement of the right to opt out of receiving covered documents electronically, and an explanation of how to exercise this right; and (vii) a telephone number to contact the administrator or other designated plan representative. The website address either should lead the covered individual directly to the covered document or to a login page that provides, or immediately after logging in provides, a prominent link to the covered document.
    • Form and manner of furnishing notice of internet availability. The notice of internet availability would need to be clear and concise, convey its importance, and easily call the recipient’s attention to its content. To that end, the proposed rule would establish standards for the form and manner of furnishing the notice. Among other things, the notice must be furnished separately from any other documents or disclosures furnished to covered individuals, subject to some exceptions, and be written in a manner calculated to be understood by the average plan participant. The DOL specifically mentioned use of “short sentences without double negatives, everyday words rather than technical and legal terminology, active voice, and language that results in a Flesch Reading Ease test score of at least 60” to meet this requirement.
    • Severance from employment. The proposed rule also contemplates the need to continue to furnish information following an employee’s severance from employment. In that case, the administrator will need to take measures reasonably calculated to ensure the continued accuracy of the covered individual’s electronic address or number. So, employers might make requesting a new email address part of their employment termination procedures.

We expect many employers and administrators will be tracking the development of the proposed rule very closely considering the potential simplification of a significant aspect of plan administration. For interested parties that have questions or comments, such as whether welfare plans are going to be added, comments will be accepted by the DOL during the 30 day period following October 23, 2019, the expected publication date. Note, however, that employers may not rely on this proposed rule unless and until it is published in final form.

North Carolina Court Awards $41 Thousand-Plus Penalty for Failure to Produce Documents Requested by Plan Participants

Section 104(b)(4) of ERISA provides that a plan administrator must respond to a written request for certain documents (including the plan documents and summary plan description) by a participant or beneficiary by providing the requested documents.  Section 502(c)(1) of ERISA and Regulation § 2575.502(c)-1 provide that a plan administrator who fails to do so within thirty days is liable to such participant or beneficiary in an amount (as determined by the court in its discretion) of up to $110 per day.   A recent decision by the United States District Court for the Western District of North Carolina, Charlotte Division (Kinsinger v. Smartcore LLC, 2019 US Dist. LEXIS 145052 (August 27, 2019)), vividly illustrates the perils in failing to comply with document requests by participants.

Kinsinger involved an employer’s establishment of a group health plan and subsequent failure to pay the premiums.  Ultimately the carrier cancelled the coverage for nonpayment and several individuals (including plaintiffs) had unpaid medical claims.  During this process, on June 3, 2016, plaintiffs requested from the plan administrator many documents within the scope of ERISA Section 104(b)(4), (including the summary plan description, plan document and underlying insurance contracts).

The Plan Administrator never responded to the plaintiffs’ document request.  Although plaintiffs sued for wrongful denial of benefits on November 1, 2017, they did not add a claim for violating ERISA Section 104(b)(4) until March 19, 2018.  The requested documents were not provided to plaintiffs until July 25, 2018, when they were produced in discovery some 748 days after the initial 30-day period had expired!

The Court had little trouble finding for plaintiffs on their claim under ERISA Sections 104(b)(4) and 502(c)(1), The Court’s analysis provides some interesting insight.  The Court noted that the plaintiffs were substantially prejudiced by defendants’ conduct because they were “left in the dark” about the correct appeal process, and also noted that the “failure to provide the requested documents frustrated plaintiffs’ ability to litigate” their dispute due to the lack of essential facts contained in the requested documents.

In response to defendants’ claim that they had produced some of the documents before the initial June 3, 2016, request, the Court found that nothing in the statute “absolves an administrator from their duty to respond to requests for documents because they previously provided participants the documents requested.”  The Court also cited Circuit Court authority (Davis v. Featherstone, 97 F.3d 734, 738 (4th Cir. 1996)) providing that “when there is some doubt about whether a claimant is entitled to the information requested, the Supreme Court has suggested that an administrator should err on the side of caution.”

Regarding the amount of the per day penalty, the court initially cited defendants’ “willingness to exploit plaintiffs’ lack of these documents in litigation” as evidence of their bad faith and malfeasance.   The Court also acknowledged that some delay in producing the requested documents was attributable to factors other than defendants’ conduct; this included plaintiffs’ delay in filing suit initially and subsequently amending their complaint to add the document request claim some four months later.  Ultimately, the Court awarded plaintiffs’ $55 (half of the maximum $110 per day penalty) for each of the 748 days late, for a total of $41,140.

Kinsinger provides a few lessons for plan administrators.  First and foremost, document requests under ERISA Section 104(b)(4) must be promptly addressed and acted upon in good faith.  The best advice?  As noted in Kinsinger, “when there is some doubt about whether a claimant is entitled to the information requested, the Supreme Court has suggested that an administrator should err on the side of caution.” Davis v. Featherstone, 97 F.3d 734, 738 (4th Cir. 1996), citing Firestone Tire and Rubber Co. v. Bruch, 489 U.S. 101, 118 (1989).

First Crack in the Armor of the Segal Blend?

The Segal Group is the premier actuarial firm in the country providing services for hundreds of multi-employer pension funds.  For almost 40 years it has used its own methodology, known as the “Segal Blend” to calculate employers’ withdrawal liability successfully without an adverse ruling by either a court or an arbitrator in hundreds of cases.

The Segal Blend calculates the discount rate used in determining the present value of pension benefits for payment by a pension fund in the future.  This methodology has been the basis for the discount rate used in calculating withdrawal liability for hundreds of multi-employer plans.  Because the Segal Blend typically results in using a lower interest rate to calculate withdrawal liability than is typically used for funding purposes, a calculation of withdrawal liability is generally greater using the Segal Blend rate.  This has permitted pension funds to collect additional withdrawal liability from hundreds of employers.

Despite being challenged often by employers, the Segal Blend had enjoyed a perfect record of being upheld in every arbitration and court decision until March 26, 2018.  In a decision by the United States District Court for the Southern District of New York, Judge Sweet in New York Times Company and the Newspaper and Mail Deliverers ‘-Publishers ‘ Pension Fund found that the Segal Blend violated ERISA.  Specifically, the District Court found that the actuary’s “best estimate” of anticipated experience under the plan would have required an interest rate assumption of 7.5%, the rate used for funding purposes, rather than the 6.5% interest rate produced by the Segal Blend.  The District Court ordered the Pension Fund to recalculate the withdrawal liability using the higher interest rate.

The matter was appealed to the United States Court of Appeals for the Second Circuit.  In May 2019, oral argument was held.  Last week the case ended.  Surprisingly, the parties stipulated by which the appeal was withdrawn with prejudice and counsel fees were not sought.    Importantly, for employers the stipulation left intact Judge Sweet’s decision that using the Segal Blend violated ERISA.  The Second Circuit approved that settlement on September 16, 2019.

What are the implications of that stipulation for employers and what factors in Judge Sweet’s decision contributed to the resolution?  In New York Times, the decision reduced a withdrawal liability assessment of $26,000,000 to zero.  Employers contributing to funds using the Segal Blend should not hesitate to retain actuaries to calculate the withdrawal liability using the rate for funding purposes.

Although the ruling does provide another arrow in an employer’s quiver to use in combatting the predominantly fund favored withdrawal liability process, it does not resolve or even clarify the issue.

Almost concurrently with Judge Sweet’s ruling, District Judge McNulty of the United States District Court for the District of New Jersey in Manhattan Ford Lincoln, Inc. v. UAW Local 259 Pension Plan (“Manhattan Ford”) upheld an arbitrator’s ruling that using a plan’s funding assumption is not required to determine withdrawal liability.  In so ruling, the Court determined that the employer had failed to prove that the Pension Fund’s use of the Segal Blend in calculating withdrawal liability was not reasonable.  Notably, use of the 7.5% interest rate for funding purposes would have resulted in no withdrawal liability.

Manhattan Ford was appealed to the United States Court of Appeals for the Third Circuit but was settled before the court reached a decision.

Although the Segal Blend issue has not been resolved, the recent resolution should provide an incentive for employers to conduct additional research into the funds to which they contribute and to retain ERISA counsel with specific experience and expertise in withdrawal liability.  Jackson Lewis can assist you with all multi-employer pension fund issues.

Don’t Overlook Your Employee Benefit Plans as You Evaluate the Effect of the Final Overtime Rule

Before employers implement their proposed workforce changes resulting from the finalization of the new overtime rule, released September 24, 2019, see our article for more information, employers should consider what impact those proposed workforce changes may have on their employee benefit plans.

Employee benefit plans with criteria for eligibility, contribution, etc. based on the classification of salary/hourly or exempt/non-exempt may see participant shifts, e.g., a currently exempt employee, participating in the salary only retirement and welfare plans, makes $475 a week in 2019.  On January 1, 2020, that employee, still making $475 a week, is a non-exempt employee and no longer eligible for the salary only employee benefit plans.

The effects of employees shifting from one plan to another effective January 1, 2020, could create issues with non-discrimination testing, top-heavy results, or a reduction in certain benefits going forward (which may require advance notice to the affected participants).  Less obvious effects could be hiding in the compensation definition.  As employers grapple with how to boost an employee into the exempt compensation tier, employers need to consider whether that classification of compensation is in the definition of compensation in the plan document and if so, is the payroll system considering it for the plan-related calculations based on compensation?

The overtime rule change could affect more than the status of an employee as either exempt or non-exempt, but it may be overwhelming to consider all the ancillary areas the new rule touches.  Contact a Jackson Lewis Employee Benefits attorney for guidance as you evaluate your workforce under the new overtime rule.

District of Columbia Commuter Benefits: New Penalties, Fines

Penalties and fines for non-compliance with Washington, D.C.’s law requiring D.C. employers to offer commuter benefits to their D.C. employees will take effect beginning on November 14, 2019.  The law, which became effective on January 1, 2016, requires employers with at least 20 employees in D.C. to offer commuter benefits to their covered employees.  Please see our in-depth article for a full discussion of the law’s requirements.

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