Compliance December 2, 2005

Supreme Court to Provide Clarification of Equitable Relief

December 2, 2005 (PLANSPONSOR.com) - The US Supreme Court has agreed to review a case that will allow it to clarify the scope of "equitable relief" or reimbursement available to Employee Retirement Income Security Act ( ERISA) plan fiduciaries when plan participants recover payments for health expenses from third parties.
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Thompson reports that the Supreme Court will re-evaluate whether the   equitable relief criteria established by the US 4th  Circuit Court of Appeals (as  well as the 5th , 7 th and 10 th Circuits) are proper under ERISA.   It will also re-evaluate its own  earlier ruling in the Great West Life v. Knudson case.

In that case the US 9 th Circuit Court of Appeals affirmed summary judgment for Janette Knudson in an ERISA suit brought by Great West Life & Annuity Insurance, Earth Systems Inc., and its health plan.   Following a car accident that left Knudson paralyzed, the plan paid more than $400,000 in benefits for medical care.    She later recovered $650,000 in a settlement approved by a California court which attributed just $13,829 to past medical expenses.   The health plan included a “right of recovery” or “subrogation” provision entitling Earth Systems to recoup benefits paid to a beneficiary who recovers from a third party responsible for the expenses (See  Supremes Get Second Chance on Reimbursement Recovery Issue).   Knudson turned over the $13,829 to Great West.

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In reviewing that case, the Supreme Court ruled 5-4 that Knudson could not be forced to repay Great West nearly $400,000 for covering the medical work she received on injuries she sustained from a car accident.   The court noted that Knudson was not in possession of the money as some had been paid to her attorneys and the rest was put in a trust for her care (See  Strict ERISA Read Results in No Benefit Reimbursement).

The 4 th Circuit case is Sereboff v. Mid Atlantic Medical Services, LLC, cert. granted, 05-260 (S.Ct., Nov.28, 2005).   According to Thompson the 4 th Circuit, which upheld reimbursement to the plan, said such a  recovery should be considered appropriate equitable relief where the funds   are specifically identifiable, belong in good conscience to the fiduciary   and are within the possession and control of the plan participant.

That decision contrasts with rulings by the 9 th and 6 th Circuits, which have held that a fiduciary’s subrogation right to   reimbursement from a plan beneficiary who has received payments from a third   party is legal in nature, regardless of whether the beneficiary has   possession of the identifiable funds.    The Supreme Court will review the  conflict among the circuits.

The Supreme Court will also consider that the 4 th  Circuit said that a plan can recover its own legal fees at a   district court’s discretion, but that in this case the lower court failed to make   the specific findings that justify such an award.    It also upheld a pro-rata  reduction in the plan’s subrogation recovery on account of the plan   participant’s attorney’s fees and plan provisions.

Reader Responses December 1, 2005

SURVEY SAYS: What's This Year's Most Significant Trend/Impact?

December 2, 2005 (PLANSPONSOR.com) - Every year about this time, I start looking back over the year just past - and try to highlight some of the major trends and developments that have impacted our industry.
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This week I asked readers to pick the most significant event over the past year.

The most common response – but by no means a majority – was the nearly 29% who said it was pension funding – and the purported attempts to fix the system.   Or, as one reader “clarified”, “…pension funding, or lack thereof.”  “Many of the other items in your list may have a more profound impact on some firms, but for the system and the people (living ever longer), the accelerated decline of annuities and DB plans will have the most profound long term affect,” noted another.  “Automatic k will keep at least some off the ground for at least part of their later years (its those nasty years after ‘life expectancy’ that will likely be bare).”

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“I think the final contingent of companies, including the one I work for, will be researching with more vigor the options available to defined benefit pension plans currently being used to deliver a part of retirement security to employees,” noted another.

Nearly one-in-five opted for “other” – and while the results were varied, they tended to revolve around two major categories – Katrina (and the ensuing impact) and Medicare D.  “With all of the hurricanes this year, especially Katrina, there were many legalities and questions regarding investments, distributions, paperwork, etc.   Hopefully, next year the season will be calmer,” said one.   As for Medicare D, “My vote is for the new prescription drug benefit under Medicare,” noted one.  “Not only can’t Medicare beneficiaries figure it out, I can’t figure it out, and I do this stuff every day!”

Healthcare “hiccups” was the pick of nearly 15% of this week’s respondents.  “No question – healthcare is our biggest problem.   We experienced a 37% increase this year,” explained one.  “While I am with a multi-employer (Taft-Hartley) pension and health fund, and pension funding is an issue for us, funding of health care benefits is a more immediate and worrisome problem,” noted another.

A surprisingly strong 12% cited the implications of 409A on their deferred compensation programs.  “409A appeared to be the most rushed, least considered, most wide-sweeping and most-confusing (even to lawyers) piece of tax legislation in my 25 years of comp & benefits experience.   A year later and they still don’t have it figured out…” noted one respondent.   Another who opted for the implications of 409A noted, “…in fact, we’re crunching away on plan amendments right now!”

Meanwhile, another 7% said that the biggest issue was stock option expensing, including one reader who noted, “(at least it seems so when you’re the stock plan administrator!)”  That “personal touch” was a consideration for a number of readers.   Among the other components of our list, the aftermath of the fund trading scandal (one reader noted, “Based on my new title (CCO) and workload, definitely (b) the aftermath of the mutual fund trading scandals.”),  Social Security insecurities, and automatic alternatives (auto enrollment, contribution acceleration, etc.) each drew about 5%, while contingent fee controversies and the cash balance conundrum split the remaining vote.

But this week’s Editor’s Choice goes to the reader who cited pension funding gaps as the biggest problem – but went on to explain, “Not that it is a problem with our pension, it’s the fact that our parent company located in Germany reads the newspaper about underfunded and unfunded pension plan here in the USA. I have to keep assuring and proving that our plan is above the 90% funding level.”

Thanks to everyone who participated in our survey!

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