Category: Benefits

Interesting article about the fallout from the Aetna Health Inc. v. Davila case: “Lawsuits against health plans crumble in wake of Supreme Court ruling: Federal appeals courts in New York and Georgia have dismissed cases that they originally said could go forward.” Excerpt:

Two federal appeals courts recently reversed decisions that originally gave subscribers the right to go forward with such cases. The rulings both take into consideration the high court’s June decision that Texas patients could not proceed with their HMO lawsuits. . .

George Parker Young, the Texas attorney who represented the two patients in the case before the Supreme Court this summer, said lawyers have been discussing other claims that could be made against HMOs in state courts.

For example, one Supreme Court justice raised the question of suing under the idea of fiduciary duty.

“It’s going to be an interesting court fight,” Young said.

The IRS has issued proposed regulations pertaining to phased retirement. This is a long-awaited and long-overdue development in the benefits arena. While there will be much more on this later, here is what the IRS has to say in its regulations regarding why it has issued the regulations and its approach to clearing some of the legal hurdles to permit “phased retirement”:

As people are living longer, healthier lives, there is a greater risk that individuals may outlive their retirement savings. In addition, employers have expressed interest in encouraging older, more experienced workers to stay in the workforce. One approach that some employers have implemented is to offer employees the opportunity for “phased retirement’ . . .

The proposed regulations would amend Sec. 1.401(a)-1(b) and add Sec.1.401(a)-3 in order to permit a pro rata share of an employee’s accrued benefit to be paid under a bona fide phased retirement program. The pro rata share is based on the extent to which the employee has reduced hours under the program. Under this pro rata approach, an employee maintains a dual status (i.e., partially retired and partially in service) during the phased retirement period. This pro rata or dual status approach to phased retirement was one of the approaches recommended by commentators. While all approaches suggested by commentators were considered, the pro rata approach is the most consistent with the requirement that benefits be maintained primarily for retirement.

Previous post on the topic here–“Baby Boomers and the Need for Phased Retirement.”

An interesting point to note here is that the proposed regulations contain a link to this NPR broadcast–“Older Workers Turn to ‘Phased’ Retirement.“

There’s an interesting article from the Billings Gazette via Benefitslink.com–“Blue Cross exec defends salary, perks.” What’s being defended? A compensation package of $1.4 million with $525,000 in pay and the rest in payments to cover a retirement plan, as well as a company car, a $2,500 personal dining allowance, and pet-sitting perks, to mention a few. According to the article, what also didn’t sit well with employees of the non-profit company was that the company instituted a new version of a health insurance plan which the articles states evoked a “firestorm of criticism” and was designed to pass more of the expense on to employees. The health plan was rescinded and a new one put in place, according to the article. However, the article notes that the executive is apparently now in negotiations with the board of directors to reduce his very “rich” retirement benefits.

Broc Romanek has comments here: “Pay Madness in Montana.“

(Recent reports indicate that executive pay for non-profits is generally being scrutinized by the IRS which has launched a “comprehensive enforcement project to explore the seemingly high compensation paid to individuals associated with some exempt organizations.” Read about it here.)

Thanks to Michael Fox for the pointer to this WSJ article which predicts that the next chair of the U.S. Senate Committee on Health, Education, Labor and Pensions will likely be a Senator from Dick Cheney’s home state of Wyoming, Mike Enzi, which Michael Fox refers to as “the only certified Human Resources Management Professional in the Senate.” Another article: “Possible lineups for committee chairmen in the next Congress.” Read about Senator Enzi’s human resource connections here.

Interesting article from Workforce Insights entitled “In the Balance: The Future of Pension Rights.” The article discusses the future of the cash balance plan and suggests that the cash balance plan controversy may be headed for the U.S. Supreme Court:

IBM’s cause – which has become the cause of pension sponsors generally – may not end at the Circuit Court in Chicago. The issue seems likely to wind up in the Supreme Court, especially if the split that has already shown up at the District Court level also occurs among the Circuit Courts of Appeals. There also could be legislation.

The Treasury has urged Congress to act. It told the lawmakers last February that the split among federal judges “has created uncertainty about the basic legality of these plans. Removing that uncertainty is critical to preserving the vitality of the defined benefit system, which provides retirement income security for millions of American workers and their families.”

Lyle Denniston is a veteran Supreme Court reporter, having covered the highest court for 46 years. He thus has covered one out of every four Justices ever to sit on the Court. Denniston is now reporting on the Court for SCOTUSblog, a Web site devoted to news and information about the Court, and for the NPR Boston affiliate, WBUR.

Recently, the DOL posted on its website here a number of opinion letters pertaining to issues connected with the Family and Medical Leave Act (FMLA). With the rising popularity of temps in the workforce, employers will want to take notice of the opinion letter issued April 4, 2004 here which addresses the issue of which individuals are counted toward the FMLA’s “50 or more employees” coverage test. The opinion letter states that it is the DOL’s belief that “a joint employment relationship ordinarily exists, for purposes of the FMLA, where a temporary agency supplies employees to a client employer,” holding that “[e]mployees who are jointly employed by two employers must be counted by both employers, whether or not maintained on only one of the employer’s payroll in a record-keeping sense, in determining employer coverage and employee eligibility under the FMLA.” (Another “outsourcing peril” that could be added to the list.)

See also this recent 11th Circuit court case of Morrison v. Magic Carpet Aviation, RDV Sports, Inc., Harry Mitchel, Alticor, Inc., f.n.a. Amway Corporation (decided September 8, 2004) which held that a “joint employment” relationship did not exist under the FMLA with respect to a contractor/pilot who was an employee of Company A but flew a plane in which Company B had a leasehold interest. Even though the pilot wore a Company B identification badge, Company B neckties, and a Company B parka, the court held that Company B did not have “direct control” over the pilot so as to create a “joint employment” relationship. (Company B in the case was RDV Sports which is the holding company which owns the Orlando Magic professional basketball team.)

A very interesting article from the New York Times: “For Pension Plans Like United’s, a Healthy Glow That’s Paper Thin.”

Thanks to Workforce Insights for the pointer to this article from CNNMoney.com, “Outsourcing the lawyers: Add attorney to the growing list of white-collar jobs being shipped overseas. How far will it go?” According to the article, “[t]his year 12,000 legal jobs moved offshore — less than one percent of the total — according to Forrester Research, a Cambridge, Mass.-based market research firm.” By 2015, Forrester predicts the job losses in the legal field will increase to 79,000, with just over half being attorney positions.

A good article from Workforce magazine on “New Tactics to Boost 401(k) Interest.” The article mentions a new site devised by Starbucks called “Futureroast.com” which features interactive computer games to educate employees about investing and saving for retirement. (Unfortunately, you can’t play unless you are an employee of Starbucks.) The article describes the site as follows:

To encourage employees to sign up for its 401(k) plan, the Seattle-based Starbucks Coffee Co., which has more than 75,000 employees, at an average age of 28, started a program called Futureroast.com. The Web site features four interactive computer games that demonstrate key investment concepts, says Jo Clark, manager of the savings program. In the Voyager game, employees learn about the concept of a company match. Players maneuver a ship and try to bring on as much cargo as possible. Along the way, players encounter enticing purchases like CDs and movie tickets, and they have to choose between buying them or saving their cargo. The longer they stay in the game, the greater the match. Since Futureroast.com started last June, participation in the 401(k) plan has grown from 18 percent to 22 percent–a 23 percent increase.

CBS MarketWatch is reporting: “California starts probing insurers: Spitzer suit spawns other investigations across U.S.” Excerpt:

California Attorney General Bill Lockyer has started an investigation into alleged bid rigging by insurance firms and brokers, the latest sign that Eliot Spitzer’s probe of the industry is spreading from New York to other states. Lockyer’s investigation, announced late Friday, will focus on possible violations of California’s antitrust law, known as the Cartwright Act, as well as potential fraud by companies.

According to the article, Lockyer said in a statement that “[a]ny insurance company or broker violating these laws will be held accountable.” (Previous post here on the benefits implications of the probes.)

Also, in October of this year, California issued proposed regulations setting forth the fiduciary duties owed to a client by brokers. For more information, read the Public Notice, the Initial Statement of Reasons for the regulations, and the text of the proposed regulations. A portion of the regulations provide as follows:

2184.4 Fiduciary duty

(a) A broker who places his or her own financial or other interest above that of his or her client violates Insurance Code section 790.02.
(b) A broker violates Insurance Code section 790.02 if, with either new or renewal business, he or she: (1) Fails to provide the client with the proposal of a best available insurer; (2) Advises a client to select an insurer other than a best available insurer; (3) Advises a client not to select a best available insurer from among multiple insurers suggested to the client; (4) Fails to take reasonable measures to obtain a quote from an insurer that might be a best available insurer.

According to this press release, “failure to comply could result in fines of up to $10,000 per incident, issuance of a cease and desist order by the Commissioner, and/or the revocation or suspension of a company or broker’s license.”

(How this law would interact with ERISA with respect to brokers who are fiduciaries under ERISA is a good topic for future discussion.)

In addition, on Tuesday California voters rejected the proposed law requiring businesses to provide health insurance for their workers or to pay into a state health coverage fund: “Mandatory health insurance loses narrowly.” (Previous posts on SB2 here.) If voters had not rejected it, many had predicted that there would have been legal challenges to the legislation under ERISA.

Finally, here’s a good article from Trucker Huss on another interesting development in California: “Discretionary Clauses in Disability Insurance Policies Ruled Illegal in California.” (From Benefitslink.com) According to the article, “[t]he California Department of Insurance and a federal district court have both recently held that the use of so called “discretionary clauses” in disability insurance policies, including those issued to plans governed by ERISA, violates California law and that the state law in this regard is not preempted by ERISA.”

(There’s never a dull moment in California!)