Top 7 legal cases of 2012
In Pfeil v. State Street Bank and Trust Company (6th Cir.), the court held that the presumption of prudence (adopted by the Second Circuit) does not apply at the pleading stage when plaintiff-participants allege that defendants were imprudent in holding company stock as a plan investment.
The 6th Circuits holding in Pfeil makes it much more difficult for defendants in a stock drop case to have the case dismissed on a summary judgment motion. The implications for employers, if theyre involved in one of these stock drop cases, they may not be able to get out of a case based on a motion for summary judgment, says Moore. They may have to get past the motions, go through discovery, and trial prep before all the facts are finally fleshed out and the court can make a determination.
Guyan International, Inc./Pritchard Mining Company, Inc. v. Professional Benefits Administrators, Inc. held that a third-party administrator who commingled health plan monies and used plan funds for its own benefit was a fiduciary because of its control over plan assets even though the administrative services agreement stated that it was not a fiduciary and it argued that it exercised only ministerial duties for the plan.
Its a cautionary tale to TPAs that the words in the contract are not going to control the functions they perform, says Moore. If the court thinks theyre self-dealing in plan assets, theyre not going to honor any of those types of words in the contract that they are not a fiduciary.
In Reese v. CNH America, LLC, the 6th Circuit expanded on its 2009 decision where it held that a plan sponsor could make reasonable changes to vested retiree medical benefits. This plan involved unionized employees under a collectively bargained agreement. The 6th Circuit recognized that, unlike pension benefits, health benefits change over time so a vested welfare benefit provides an evolving and not a fixed benefit. A plan sponsor can change those vested welfare benefits as long as the changed plan design provides a benefit that is reasonable commensurate with the original plan design.
Based on this decision, an employer is free unilaterally, without bargaining to make reasonable changes to retiree medical benefits. That is very welcome news for employers, says Moore.
U.S. Airways Inc. v. McCutchen raises the issue of whether a benefit plan administrator is entitled to full reimbursement for payments made to a plan participant injured in an accident where the participant sued and recovered damages from a third party. The Supreme Court has heard oral arguments in the case in late November.
The question before the Supreme Court is: What is going to control? Is it going to be the way the sponsor drafted the plan? Or is it going to be the courts notion of unjust enrichment? says Casciari.
In another case dealing with financial remedies under ERISA, the 9th Circuits decision in Skinner v. Northrop Grumman Retirement Plan B interpreted the Supreme Courts 2011 decision in CIGNA v. Amara to hold that employees who received a flawed summary plan description which didn't adequately explain that their benefits would be offset were not entitled to receive equitable remedies under ERISA.
The significance of this case, according to Casciari, is that it limits monetary recovery under ERISA -- outside the plan terms to those situations where deceit or fraud is involved. It is a narrow reading of the Amara decision, he says.
In October, a federal appeals court in New York struck down the Defense of Marriage Act, finding that the laws denial of federal benefits to married same-sex couples is unconstitutional. Its the second time DOMA has been struck down this year; a federal appeals court in Boston made a similar ruling in May. The Supreme Court is expected to eventually take up the issue. From a benefits standpoint, nothings really going to happen on that until the Supreme Court rules on it, explains Todd Solomon, a partner with McDermott Will & Emery.
For more on what plan sponsors can do to ensure their benefits plans stay on the right side of the law with respect to same-sex unions, read Take inventory of plans to ensure legal compliance or listen to this podcast with Mercers Cathy Stamm.
And while everyone is familiar with the Supreme Courts decision to uphold the Patient Protection and Affordable Care Act, Howard Shapiro, an attorney with Proskauer, believes weve not seen the last of litigation over PPACA. Everything from how PPACAs independent review organizations will fit in with ERISAs claims review procedures to the way grandfathered plans have handled mandated benefits to the legislations whistleblower provisions to the contraception mandate could spark litigation down the road.
The Supreme Court decision on the health care reform law took center stage this year as the most significant case to affect benefit plan sponsors. And while it certainly was an important case, there were other legal decisions in 2012 that have considerable implications for plan sponsors. EBN asked four benefits lawyers Dickinson Wrights Cynthia Moore, Seyfarth Shaws Mark Casciari, McDermott Will & Emerys Todd Solomon and Proskauers Howard Shapiro for their views on some of the years most important cases. [Images: Thinkstock]