Author: jfortenberry@fortenberrylaw.com

From the TaxProfBlog:

Lee A. Sheppard has published Shelter Penalties: Or Else What? Part 3, also available on the Tax Analysts web site as Doc 2005-3055, 2005 TNT 30-5.

The article in Q & A format reports on a session of the ABA Section of Taxation meeting in San Diego on January 22 where the authors of Circular 230 answered questions about it.

More about Circular 230 here.

Matthew Vansuch, a 3L at the University of Akron School of Law, has written a very interesting note for the Akron Law Review, discussing the impact of the U.S. Supreme Court case of Kentucky Association of Health Plans, Inc. v. Miller. The note is entitled “Not Just Old Wine in New Bottles: Kentucky Association of Health Plans, Inc. v. Miller Bottles a New Test for State Regulation of Insurance.” As you may recall, the Miller case changed the test for determining whether a state law is deemed to be a law “which regulates insurance” under the ERISA “savings clause” to the following two-prong test: (1) the state law must be directed specifically directed toward entities engaged in insurance, and (2) the state law must substantially affect the risk pooling arrangement between the insurer and the insured. The article contains a noteworthy observation about how federal district courts since Miller have been “sluggish” in coming to an understanding of the perceived “differences between the common sense-McCarran-Ferguson test and the Miller test.” Vansuch argues that “Miller is a new blend of wine fermented from a different batch of grapes than those used in the bottling of the casks of old, unlabeled wine barrels that confused everyone, including the Supreme Court.” He further argues that Miller’s two-part test is a “clean break,” and “not merely the old McCarran-Ferguson grapes recycled into Miller’s vintage.”

Read more about ERISA preemption in previous posts which you can access here.

Did you know that the Social Security Administration keeps a database of individuals who have been identified by the Internal Revenue Service as having qualified for pension benefits under private retirement plans? The database is maintained by SSA pursuant to the requirements of ERISA. You can access information about the database here.

RothCPA.com has responded to my announcement yesterday about a new HR blog which you can access here. (Many thanks for sending readers our way!)

A recent Sixth Circuit case–Ramsey v. Formica Corp.–illustrates how painful it can be to unravel errors made by plan administrators in making payments to retirees. The saga in this case apparently began with an audit of the pension plan in question which revealed that certain retirees had, for a period of between eight and seventeen years, been receiving monthly amounts which exceeded what they were entitled to under the plan. The audit found that 440 of the 624 retirees in its defined pension plan dating from 1985 were receiving incorrect benefits. In January of 2004, the company, which was emerging from Chapter 11 bankruptcy reorganization, found that 295 retirees received overpayments totaling about $1 million and another 145 retirees had been underpaid a total of about $500,000. The Company entered into a Voluntary Compliance Program with the Internal Revenue Service and began correcting the benefit payment mistakes.

While the plan made up the underpaid amounts, it also reduced the payments of those who were overpaid, and indicated that it might have to recover certain additional overpayment amounts from retirees. Here’s what happened next:

To maintain their monthly payments notwithstanding the audit findings, plaintiffs filed an action in state court alleging claims of negligent misrepresentation and promissory estoppel. Contemporaneously, plaintiffs filed a motion for a temporary restraining order to enjoin Formica from reducing its monthly benefit payments. The same day, Formica filed a notice of removal, arguing that plaintiffs’ complaint stated claims under the Employee Retirement Income Security Act for breach of fiduciary duty. The district court accepted jurisdiction pursuant to 29 U.S.C. §1132(a)(3), and held a conference that afternoon to establish a briefing schedule and a hearing date for oral argument with regard to plaintiffs’ motion for a temporary restraining order. The next day, Formica amended its notice of removal to argue that plaintiffs seek “to recover pension benefits” and, therefore, that plaintiffs’ state law claims are entirely preempted by the Act. Plaintiffs then amended their complaint to add claims for breach of fiduciary duty and equitable relief under the Act and to name as additional defendants the fiduciaries of Formica’s Employee Retirement Plan.

The district court denied the motion for a temporary restraining order and the Sixth Circuit affirmed, holding that the form of relief was not authorized under ERISA. The Court, relying on Mertens and Great-West held that here, where the plaintiffs were asking for the Court to direct the plan to pay monies which were not owed for an uncertain duration, that the relief sought did not fall under the “categories of relief that were typically available in equity” and, therefore, were not authorized by ERISA.

One of the alternatives suggested by the plaintiffs was that the company (rather than the plan) should continue paying the unreduced amounts to the retirees, but the Court affirmed the district court’s ruling that such state law claims were tied to the incorrect processing of the pension payments and thus were entirely preempted by ERISA.

Also, an interesting aspect of the case was a statement by the Court that at various times the company had allegedly “solicited substantial groups of employees to take early retirement” and had “presented each employee with proposed early retirement kits” which had included “pre-prepared documents describing the incentive for early retirement as well as individualized estimates detailing what the specific retiree could expect in benefits each month.” According to the Court, the plaintiffs had chosen to retire early and had received the amounts that were represented to them by the “early retirement solicitation.”

The Greater Valley Forge Human Resource Association has launched a new blog here. The aim of the blog is to track legal developments of interest to HR professionals, consultants, and advisers. Kristen Carey (of Montgomery, McCracken, Walker & Rhoads, LLP) and I are currently posting to the blog.

Thanks to RothCPA.com for the link to the new Federal Tax Reform website. Excerpt from the press release:

“The President has tasked our Panel with developing reforms to make the tax code simpler, fairer and more growth oriented. I look forward to the opportunity to hear from Secretary Snow as well as this distinguished group of experts as we begin the process of examining the problem and formulating solutions,” Senator Mack stated.

“The current tax system is an unfair burden on Americans,” added Senator Breaux. “When it takes the average taxpayer 11 hours to fill out the short tax form, something is wrong. This is a unique opportunity to work in a bipartisan effort and find ways to make the tax system serve Americans better.”

Want to be involved in the process? You can submit written comments by snail mail, or attend meetings which begin February 16th as discussed here. Or, you could start a blog . . .