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Your ERISA Watch – Expectation of Future Salary Increases Is Not An “Accrued Benefit” for Purposes of Anti-Cutback Rule

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This week’s notable decision is Teufel v. Northern Trust Co., No. 17-1676, __F.3d__, 2018 WL 1734700 (7th Cir. Apr. 11, 2018).  In Teufel, the Seventh Circuit considered whether an amendment to the Northern Trust pension plan decreased Teufel’s accrued benefit and harmed older workers relative to younger ones, in violation of ERISA’s anti-cutback rule and the Age Discrimination in Employment Act (ADEA).

The gist of the amendment is as follows:  In 2012, Northern Trust changed its pension plan from a defined-benefit plan under which retirement income depended on years worked, times an average of each employee’s five highest-earning consecutive years, times a constant (“Traditional formula”) to a new PEP formula that multiplies the years worked and the high average compensation not by a constant but by a formula that depends on the number of years worked after 2012.  The parties agree that it reduces the pension-accrual rate.  For people hired before 2002, Northern Trust provided a transitional benefit that treated them as if they were still under the Traditional formula except that it would deem their salaries as increasing at 1.5% per year, without regard to the actual rate of change in their compensation.

Teufel claimed that the amendment reduced his “accrued benefit” because he expected his salary to continue increasing at more than 5% a year, as it had done since he was hired in 1998.  The court held that the sponsor’s amendment to the pension plan did not decrease Teufel’s accrued benefit in violation of ERISA’s anti-cutback rule.  This is because the expectation of future salary increases is not an “accrued benefit;” the only benefit that had “accrued” was the amount due for work already performed.  “What a participant hopes will happen tomorrow has not accrued in the past.”  Moreover, the Traditional formula does not guarantee that any worker’s salary will increase in future years.

In addition, the court found that the sponsor provided Teufel with a writing that describes the amendment in a manner calculated to be understood by the average plan participant, as required by ERISA.  Northern Trust provided its staff with an online tool that showed each worker exactly what would happen under a number of different assumptions about future wages and retirement dates.  “A precise participant-specific summation is hard to beat for clarity and complies with § 1054(h)(2).”  Lastly, the court held that the amendment did not violate the ADEA because the plan complies with § 623(i).  The court noted that the Supreme Court has never held that the disparate impact of an age-neutral pension plan can violate the statute.

In firm news, I’m pleased to report a recent victory in Cochran v. Reliance Standard Life Insurance Company, where the court found that our client was disabled and entitled to long-term disability benefits.  This matter was handled by our attorneys, Corinne Chandler, Beth A. Davis, Beth D. Perez, and Glenn R. Kantor.  Read more below!

Below is a summary of this past week’s notable ERISA decisions by subject matter and jurisdiction.

Attorneys’ Fees

Fourth Circuit

Stortz v. Cherokee Insurance Company, et al., No. 5:16-CV-200-GCM, 2018 WL 1763523 (W.D.N.C. Apr. 12, 2018) (Graham C. Mullen).  In this dispute over the payment of medical treatment, the court found that Plaintiff’s request for fees of $73,305 is unreasonably high due to spending an unreasonable number of hours on this matter. “Further, the Court finds that the expectations of the attorneys at the outset of litigation were for a significantly smaller fee than what is requested in Plaintiff’s motion and reply. However, the Court also recognizes the complexity of ERISA cases and the significant result Plaintiff’s attorneys achieved on behalf of Plaintiff and future Plan beneficiaries. Accordingly, the Court finds that, in light of all of the factors discussed in Robinson, a fee award of $55,000 is appropriate in this matter.”

Fifth Circuit

The Guardian Life Insurance Company of America v. Shavor, No. 3:16-CV-978-CWR-LRA, 2018 WL 1747621 (S.D. Miss. Apr. 10, 2018) (Carlton W. Reeves).  In this interpleader action involving the payment of AD&D benefits, the court denied Defendants’ motion for prejudgment interest and attorneys’ fees.  It found that Guardian’s delay in making the payment was reasonably justified.  Guardian was waiting to receive evidence showing that the death was the “direct result of the accident, independent of all other causes.” Though Guardian missed the initial 90-day deadline to determine AD&D benefits, it notified Defendants only five days later that it would avail itself of the 90-day extension and Defendants’ counsel agreed to further extensions beyond the 180 days permitted under ERISA.  Guardian issued the AD&D benefits to Defendants 23 days after receiving adequate proof of loss.

Breach of Fiduciary Duty

Ninth Circuit

Fernandez v. Franklin Resources, Inc., No. 17-CV-06409-CW, 2018 WL 1697089 (N.D. Cal. Apr. 6, 2018) (Judge Claudia Wilken).  The severance agreement does not bar Plaintiff’s claims in this lawsuit because Plaintiff brought an ERISA Section 502(a)(2) claim on behalf of the defined contribution plan and Plaintiff could not waive that right without the consent of the Plan.  The court declined to dismiss this case on the basis of the “first-to-file” rule and instead consolidated it with the matter pending in Cryer v. Franklin Resources, Inc.  The court also found that Plaintiff’s complaint states claims for breach of fiduciary duty, prohibited transactions, and failure to monitor.

Class Actions

Second Circuit

The Medical Society of the State of New York, et al. v. Unitedhealth Group Inc., et al., No. 16-CV-5265 (JPO), 2018 WL 1773142  (S.D.N.Y. Apr. 12, 2018) (Judge J. Paul Oetken).  This putative class action alleges that Defendants have systematically violated the terms of Plaintiffs’ health insurance plans. The court denied Defendants’ motion to strike the class allegations from Plaintiff’s Corrected First Amended Complaint.  The court explained that it is too early to speculate about whether or not a class is certifiable.

Disability Benefit Claims

Fifth Circuit

Colvin v. 88 Board, The Joint Board of Trustees for the 88 Plan, No. SA-17-CV-974-XR, 2018 WL 1756738 (W.D. Tex. Apr. 11, 2018) (Judge Xavier Rodriguez).  Plaintiff’s lawsuit alleges that he is an eligible former NFL Player entitled to receive 88 Plan benefits and Defendant wrongfully denied those benefits in violation of the plan provisions and ERISA.  Plaintiff moved to expand the administrative record to include documents provided to Defendant after it rendered its final decision but before Plaintiff filed his lawsuit.  Vega permits inclusion in the record all relevant information made available to the administrator prior to the filing of a lawsuit and in a manner that gives the administrator fair opportunity to consider it.  The court granted Plaintiff’s motion to expand the record and remanded the case to the administrator to consider the information.

Eighth Circuit

Timm v. Unum Life Ins. Co. of Am., No. 17-CV-3019-LRR, 2018 WL 1710439 (N.D. Iowa Apr. 9, 2018) (Magistrate Judge C.J. Williams).  Where Plaintiff received treatment for optic neuropathy in his left eye within the six-month period prior to the policy’s effective date, and where the magistrate judge found that Plaintiff became disabled as a result of bilateral optic neuropathy (not just blindness in his right eye for which he first received treatment outside of the look back period), Plaintiff’s condition is “pre-existing” within the language of the policy and long-term disability benefits are not payable.  The magistrate judge recommended that the Court affirm Defendant’s decision.

Ninth Circuit

Cochran v. Reliance Standard Life Ins. Co., No. EDCV1602483JGBDTBX, 2018 WL 1725650 (C.D. Cal. Apr. 4, 2018) (Judge Jesus G. Bernal).  On de novo review, the court granted Plaintiff’s motion to consider extrinsic evidence in part and considered Plaintiff’s Social Security Disability Insurance decision even though the SSA did not have the reports of the three doctors who examined Plaintiff.  The court declined to consider an insurance policy that was not the same policy under which Plaintiff is insured.  On the merits, “[i]n sum, the position taken by Dr. Akhavan and Dr. Mehta, and relied on by Reliance, sets a ‘threshold that can never be met by claimants who suffer from fibromyalgia or similar syndromes, no matter how disabling the pain.’  Courts have found that disability claims based on fibromyalgia and chronic fatigue syndrome may be grounded in subjective evidence and treating physician records.  The evidence which the Court accords the most credibility shows Plaintiff is unable to work and ‘totally disabled.’” (internal citations and quotations omitted).

Discovery

Seventh Circuit

Chicago Regional Council of Carpenters Pension Fund, et al. v. Celtic Floor Covering, Inc., No. 15 C 7523, 2018 WL 1755502 (N.D. Ill. Apr. 12, 2018) (Magistrate Judge Jeffrey Cole).  In this “run-of-the-mill, ERISA-Taft-Hartley Act contributions case,” the court denied Defendant’s motion to quash Plaintiffs’ requests for admissions and production, and interrogatories without prejudice to renew in the event that the parties are unable, after truly good faith negotiations, to compromise on a solution to this discovery quarrel.

ERISA Preemption

Eleventh Circuit

Hendrix v. UnitedHealth Grp. Inc., No. 4:17-CV-1834-KOB, 2018 WL 1697391 (N.D. Ala. Apr. 6, 2018) (Judge Karon Owen Bowdre).  The administrator of Hendrix’s estate brought a lawsuit under the Alabama Wrongful Death Act against Defendants arising from Defendants’ refusal to cover necessary care which ultimately allegedly led to the death of Mr. Hendrix.  Defendants contend that ERISA preempts Plaintiff’s claim.  The court granted Plaintiff’s motion for remand to state court.  The court explained that Plaintiff wants to punish UnitedHealth for alleged misconduct leading to her husband’s death and that UnitedHealth cannot show that she had the ability to bring this wrongful-death claim within the scope of § 1132(a).  The court cannot convert the state-law wrongful-death claim into a federal ERISA claim so it lacks jurisdiction to hear this case.

Exhaustion of Administrative Remedies

Third Circuit

Lemoine v. Empire Blue Cross Blue Shield, et al., No. CV 16-6786 (JMV), 2018 WL 1773498 (D.N.J. Apr. 12, 2018) (John Michael Vazquez).  In this dispute over the payment of out-of-network medical services incurred by Plaintiff following a motorcycle accident, the court found that “Plaintiff is required to exhaust the administrative remedies available to her and has not plausibly pled that she has exhausted such remedies; the Amended Complaint admits the opposite.”  The court also found that Plaintiff did not plead futility.  The court granted Defendant Empire’s motion to dismiss for failure to exhaust but not Blue Cross’s motion since the court did not have the Plan documents which contain the appeal requirement.  The court also found that Plaintiff’s Amended Complaint fails to plausibly state a claim for denial of benefits under ERISA Section 502(a)(1)(B).

Sixth Circuit

Kennedy v. Life Insurance Company of North America, No. 17-5901, __F.App’x__, 2018 WL 1773557 (6th Cir. Apr. 13, 2018) (BEFORE: MOORE, THAPAR, and BUSH, Circuit Judges).   The court held that the district court did not abuse its discretion in holding that Plaintiff failed to exhaust his administrative remedies.  Here, LINA denied Plaintiff’s short-term disability claim and on the appeal deadline, LINA received an illegible letter signed by Plaintiff’s daughter but Plaintiff never returned LINA’s call concerning the same.  Over two years later, LINA received two letters from Plaintiff’s attorney concerning an application for long-term disability benefits but it did not respond to those letters because a review of its records showed that Plaintiff no longer worked for his employer and was therefore ineligible for benefits.  “The district court was right: Kennedy never applied for long-term benefits. The first time he even mentioned long-term benefits was in his attorney’s letters—both of which came long after any such claim was due under the plan’s terms. Kennedy therefore failed to exhaust LINA’s administrative process.”

Life Insurance & AD&D Benefit Claims

Seventh Circuit

Williams v. Allstate Insurance Company, No. 16-CV-6696, 2018 WL 1706369 (N.D. Ill. Apr. 9, 2018) (Judge John Robert Blakey).  The court determined that Plaintiff, the decedent’s husband, failed to provide any evidence to show that his wife intended him to be a primary beneficiary for her Supplemental Life coverage, rather than her children who were named as equal primary beneficiaries.  The court also determined that Defendant complied with ERISA by paying the Supplemental Life benefit to her designated beneficiaries.  The court granted Defendant’s motion for summary judgment.

Thrivent Fin. v. Gonzalez, No. 1:17-CV-144-TLS, 2018 WL 1696656 (N.D. Ind. Apr. 6, 2018) (Judge Theresa L. Springmann).  In this interpleader action, the court denied summary judgment by one of the defendants and ordered additional briefing as to whether, as a matter of ERISA federal common law, the decedent substantially complied with ERISA’s change of beneficiary requirements or whether the alleged oral contract has any bearing on the change in beneficiary analysis.

Pension Benefit Claims

Seventh Circuit

Reinwand v. National Electrical Benefit Fund, No. 17-CV-538-BBC, 2018 WL 1747324 (W.D. Wis. Apr. 11, 2018) (Judge Barbara B. Crabb).  The court denied the pro se Plaintiff’s motion for reconsideration of the dismissal of his ERISA claim for pension benefits against the individual defendants.  None of the plan provisions support Plaintiff’s claim that the trustees or administrators are personally responsible for paying claims.

Teufel v. N. Tr. Co., No. 17-1676, __F.3d__, 2018 WL 1734700 (7th Cir. Apr. 11, 2018) (Before Wood, Chief Judge, and Bauer and Easterbrook, Circuit Judges).  See Notable Decision Summary above.

Pleading Issues & Procedure

Fifth Circuit

Davis v. Protect Controls, Inc. Flexible Account Plan, et al., No. CV 4:17-02677, 2018 WL 1782844 (S.D. Tex. Apr. 13, 2018) (Judge ).  Plaintiff’s lawsuit against Defendants alleging misrepresentation and concealment of monies in connection with the settlement of his 2009 lawsuit, including a benefit payment from an ERISA plan, is barred by res judicata. The court granted summary judgment in favor of Galagaza and Jackson Lewis, P.C.  Regarding Defendant PCI, the Fifth Circuit has recognized that when one defending party establishes that the plaintiff has no cause of action, this defense generally inures also to the benefit of other similarly situated defendants.  As such, the Court also granted summary judgment to PCI.

Provider Claims

Third Circuit

University Spine Center, on assignment of Thomas P., v. Aetna, Inc., No. CV 17-13654 (JLL), 2018 WL 1757027 (D.N.J. Apr. 12, 2018) (Judge Jose L. Linares).  The plan has a valid and enforceable anti-assignment clause, which prevents Patient from assigning his rights or benefits to Plaintiff, such that Plaintiff does not have standing to bring this action seeking payment for services provided to Patient.

Retaliation Claims

Sixth Circuit

Stein v. Atlas Indus., Inc., No. 17-3737, __F.App’x__, 2018 WL 1719097 (6th Cir. Apr. 9, 2018) (BEFORE: BOGGS, BATCHELDER (concurring and dissenting in part), and THAPAR, Circuit Judges).  The Court reversed the district court’s dismissal of Plaintiff’s ERISA claims, alleging that Atlas terminated his employment, at least in part, based on its desire to rid itself of Plaintiff’s son’s large medical bills.  “In combination with Atlas’s documented concerns about skyrocketing health-care costs and its managers’ purported comments about Jordan’s claims, this evidence permits an inference that Atlas was motivated at least in part by its desire to be free from a medical-cost albatross. At trial, Stein could paint a picture suggesting that Atlas, concerned about Jordan’s medical expenses, simply bided its time and waited—Gotcha! style—for Stein to make a mistake. And then, when he did, the company jumped at the chance to cut him loose. This is a story that, in view of the evidence, a reasonable jury could believe. So Stein should have the chance to tell it. The district court thus erred in granting Atlas summary judgment on Stein’s ERISA claims.”

Statute of Limitations

Seventh Circuit

Emerick v. Blue Cross Blue Shield Anthem, No. 3:17-CV-895 JD, 2018 WL 1762848 (N.D. Ind. Apr. 11, 2018) (Judge Jon E DeGuilio).  In this case, the pro se plaintiff sought payment from Blue Cross for the medical treatment incurred by his now deceased wife between 2011 and 2012.  Under the policy’s contractual limitations period, Plaintiff had to file suit by April 2015.  Though he did not file his lawsuit until 2017, the court declined to dismiss his complaint for untimeliness.  The court explained that the complaint is ambiguous as to when Plaintiff exhausted the policy’s internal review procedures, if at all.  “For example, if Emerick challenged Anthem’s response to his claims pursuant to the grievance and appeal process, and those internal procedures did not conclude until after April 2015, then he would certainly have far less than an “unreasonably short” period of time to file a civil suit under Heimeshoff; he would have no time at all to file suit. . . . Because these factual details remain unresolved, the Court cannot address the reasonableness of the applicable contractual limitations period here, as required by Heimeshoff. ”

 

 

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