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Washington D.C. Benefits Law Blog

Supreme Court hears case from IBM employees

On November 6, an attorney representing employees of IBM told the Supreme Court in Washington, D.C. that the employees should be allowed to sue the company's retirement fund managers because they did not disclose that the company's stock was overvalued. IBM's 401(k) plan invests in company stock. The Supreme Court will decide whether the Employee Retirement Income Security Act requires fund managers to disclose to employees drops in stock value that result from wrongdoing. In this case, stocks dropped because the microchip-making division had issues.

According to a friend-of-the-court brief filed by the U.S. Chamber of Commerce, if IBM loses, this could lead to other companies' reluctance to include company stock in retirement plans. There are a number of other class-action lawsuits that also assert that there is a fiduciary duty to inform employees of wrongdoing that leads to stock drops.

MIT ERISA lawsuit moves toward settlement

Employees in Washington, D.C., and across the country are protected by the provisions of the Employee Retirement and Income Security Act of 1974, or ERISA. The law contains regulations that require companies with employee benefits plans, including retirement funds, disability plans and health insurance programs, to provide explicit documentation and manage those plans in the best interests of the workers. When companies fail to do so, they can be held accountable in court, and significant damages can be assessed. One case involving the Massachusetts Institute of Technology retirement plan is moving toward a settlement.

Participants in the MIT plan sued the university in an ERISA benefits claim, accusing plan administrators of breaching their fiduciary responsibility to the plan participants. In the settlement, the university will pay $18.1 million to the class of plaintiffs, including covering their legal fees. The settlement funds will be divided among the class members based on how long they were involved in the plan and the amounts they invested. Beyond the financial settlement, however, the document also puts in place a number of specific rules that will govern the behavior of the fiduciaries running the MIT plan in the coming years. The plaintiffs in the case agreed that they would not come back to court on the issues in question in the case.

Plan participants receive compensation for ERISA violation

Businesses and plan administrators overseeing employee benefits in Washington, D.C., have legal responsibilities to uphold to the workers enrolled in a health, retirement or disability plan. Under the Employee Retirement Income Security Act of 1974, plan administrators must respond to participants' and beneficiaries' requests for certain documents, including basic plan descriptions and summaries of coverage. They have 30 days to respond without penalty, but they could be fined up to $110 each day afterwards.

One federal court case illustrates that these fines are not simply an attempt at deterrence that are rarely assessed in reality. In this case, an employer set up a group health insurance plan for its employees but later failed to pay the premiums. As a result, the coverage was cancelled due to the employer's failure to pay, but several plan participants were left with unpaid medical claims. In an attempt to deal with the claims, these participants requested certain plan documents from the administrator in accordance with ERISA. However, the administrator never replied to their requests for the documents, and the participants sued over a wrongful denial of benefits. They later added a claim specifically for the ERISA violations in the case.

Employees can challenge deficient COBRA notices

Employees in the District of Columbia and around the country who receive benefits through their employer have a right to accurate and timely notifications about important issues affecting their health care and retirement plans. Under the Employee Retirement Income Security Act of 1974, companies must provide notices of key changes and provisions linked to their benefits. The law is designed to protect employees from damaging and wasteful choices that could undermine their much-needed benefits. One area that is included in ERISA is COBRA coverage, replacement health care coverage offered after a person loses access to workplace-provided health care for certain reasons.

COBRA notices are required by law to contain specific information, including contact information for the plan administrator and an address to send payments. They should also be provided in a timely manner. The U.S. Department of Labor provides model notices for employers to use to structure their COBRA notifications. However, some employees have received COBRA notices lacking required details. Under the law, employees who fail to receive correct and timely notices about their policies can pursue up to $110 a day in compensation.

Plan ambiguity costs employer $4 million

The pension plans and benefits packages of private sector employees in the District of Columbia and around the country are protected by the Employee Retirement Income Security Act. ERISA claims are often filed over alleged breaches of fiduciary duties connected to complex stock transactions, but they may also arise when plan documents contain language that could be subject to more than one interpretation. Such a dispute was recently argued in a federal court in Connecticut over how the word 'maximum" in a life insurance policy should be interpreted.

The claim was filed by an employee's widow who was seeking an additional $4 million in life insurance benefits. The policy documents stated that beneficiaries were entitled to a sum equal to five times the salary of the deceased worker with a minimum and maximum payout of $100,000 and $1 million respectively. The employer felt that the word 'maximum" applied to the payout while the widow believed the language placed a cap on the deceased worker's salary. The widow received $1 million in benefits according to the employer's interpretation.

Industry groups argue ERISA claim should be denied

Several industry groups in Washington, D.C., are urging the Supreme Court to rule in a case addressing required disclosures for retirement plans covered by ERISA, the Employee Retirement Income Security Act. Several organizations, including the National Association of Manufacturers, the U.S. Chamber of Commerce, the American Benefits Council and the American Retirement Association, submitted a joint friend-of-the-court brief calling on the nation's highest court to overturn a decision by the Ninth U.S. Circuit Court of Appeals. In that decision, the court allowed a lawsuit over an alleged breach of fiduciary duties by a plan manager to move forward.

A member of a retirement plan filed suit against Intel's retirement plan administrators over its practice of investing participants' funds in alternative investments that significantly underperformed in comparison to competitors. According to the lawsuit, over 66% of participants were having their funds invested in these custom funds rather than in standard index funds performing equal to or better than the market. The company attempted to have the suit dismissed, claiming that the lawsuit had come too late due to a three-year statute of limitations. The district court agreed that the plan disclosures sent to participants were sufficient to provide actual knowledge to participants.

What to consider before signing an employment contract

Employers in the Washington, D.C., area operate in one of the nation's most competitive job markets. Attracting qualified candidates will usually require offering a comprehensive benefits package as well as an attractive salary. Many of the benefits offered by employers must comply with standards outlined in the Employee Retirement Income Security Act, but companies also consider industry standards and their current and future financial obligations when deciding what to offer their employees. This means that employment contracts are often complex documents that can be difficult to understand.

Employee benefit plans sponsored by employers should, ideally, reward and motivate employees while complying with ERISA.  As an employee you will be entitled to receive certain plan documents upon becoming eligible to participate in the sponsored plans. When negotiating your employment contract, make sure you have your employer add those eligibility dates in your agreement so that you know when to expect your plan documents.  Also ask that you employment contract detail who is the appropriate contact regarding your employee benefits and reflect any intranet sites where documents and forms are located.  Employers sponsoring ERISA benefit plans have a responsibility to tell you the truth about your benefits, so make sure you document your requests and the responses. The employer typically is not the fiduciary, so you may be directed to the appropriate fiduciary respopnsible for the benefit plans. The fiduciary also must be truthful and provide you a complete response to your questions. 

Your employment contract should be drafted with great care to ensure that it reflects all that you need to know about your employee benefits.  Both executives and non-executives should take care to understand the types of benefits offered and when you will become eligible for them. If you are choosing between several job offers or deciding whether or not to sign a new employment contract, legal insight from an attorney experienced in this area could be very helpful.

The protections offered by ERISA

Employees in the Washington, D.C., area and throughout the country may be covered by the federal Employee Retirement Income Security Act of 1974 (ERISA). It applies to most retirement and health plans, and it sets rules as to the information employees who are covered by an ERISA plan are entitled to know. It's worth noting that this legislation does not apply to most plans created outside of the United States. ERISA also doesn't apply to plans that were created or overseen by employees, government agencies or churches.

The legislation has been altered several times since it was first created. Important changes include the Health Insurance Portability and Accountability Act (HIPAA) and the Consolidated Omnibus Budget Reconciliation Act (COBRA). HIPPA laws are designed to prevent employees from being discriminated against due to their medical care. The COBRA amendment allows employees who have been terminated retain an employer plan for a predetermined amount of time.

Denials of benefits claims for public employees

If you're a public sector or federal employee in the Washington, DC, area, you likely enjoy greater benefits than employees in the private sector. Your benefits package may include generous retirement, disability and medical benefits.

Along with the differences between the benefits packages, the processes for filing benefits claims are also different for public sector and federal employees. When you suffer an injury, become disabled or decide to retire, it can be devastating if your claim for benefits is denied.

Outdated mortality table questioned in ERISA lawsuit

A major purpose of ERISA is to help employees in Washington, D.C., and around the country secure appropriate retirement and health benefits. However, benefit payments may not be dished out correctly if old data is used to determine annuity payment amounts. This, in a nutshell, is what's at the heart of a lawsuit involving a large military shipbuilding company's non-single-life-annuity plans.

In a complaint filed in the U.S. District Court for the Eastern District of Virginia, the company is accused of using outdated mortality data that was first published in 1971. This data assumes 90 percent of the company's employees are male and 90 of the contingent beneficiaries are female. A 6% interest rate is also used. If company retirement plan participants opt for a single life annuity (SLA), they'll receive benefits at a flat monthly rate for each year of service from their retirement date until they pass.

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