Northwest OH Legal Blog

Wednesday, October 1, 2014

United States Department of Labor Issues Updated Guidance on Fiduciary Duty to Locate Missing Participants

One of the perennial problems that plan administrators of defined contribution plans face is the disposition of accounts being held for participants who are owed benefits but cannot be located (referred to as “missing participants”).  On August 14, 2014, the United States Department of Labor (“DOL”) issued updated guidance regarding a fiduciary’s duty to locate missing participants and beneficiaries when making distributions from terminated defined contribution plans. The new DOL guidance was prompted by the termination of well-established letter-forwarding programs that had been developed and used for many years by the Internal Revenue Service and the Social Security Administration to locate missing participants.  Although the new DOL guidance is aimed at terminated defined contribution plans, the guidance has relevance to non-terminated defined contribution and defined benefit plans that are faced with the problem of finding missing participants.

Searching for Missing Participants.  According to the DOL guidance, a fiduciary must make a reasonable effort to locate missing participants so that the fiduciary can implement directions from the participant or beneficiary regarding plan distributions.  Reasonable expenses incurred in the search may be charged to missing participants’ accounts.

The guidance provides four search methods that the fiduciary is required to use to find a missing participant.  Other methods may be required if the missing participant’s account balance is large enough to warrant additional expense.  The required search methods are:

1.         Use Certified Mail.  The fiduciary should send a notice to the participant’s last known address using certified mail.  The DOL has previously provided a model notice that can be used for such a mailing.  Other forms of notice can also be used.

2.     Check Related Plan, Fund Office, and Employer Records.  It is possible that more up-to-date contact information about a missing participant’s whereabouts is available through other sources, including the fund office for a Taft-Hartley plan, the participant’s former employer, or the administrator of a related plan.  The fiduciary should request that the fund office, the former employer, or the administrator, as applicable, search its records for a more current address for the participant.  According to the DOL, if there are privacy concerns, the fiduciary engaged in the search may request that the source contact the missing participant, or forward a letter to the participant, on the plan’s behalf.

3.         Check with Designated Plan Beneficiary. The third method is for the fiduciary to try to identify and contact any individual that the missing participant has designated as a beneficiary (e.g., spouse, children, etc.) to find updated contact information for the missing participant.  Again, if there are privacy concerns, the fiduciary may request that the designated beneficiary contact the missing participant, or forward a letter to the participant, on the plan’s behalf.

4.   Use Free Electronic Search Tools.  A fiduciary must make reasonable use of Internet search tools that do not charge a fee to search for locating a missing participant.  Such online services include Internet search engines, public record databases (such as those for licenses, mortgages and real estate taxes), obituaries, and social media.

If these four search methods are not successful in locating the missing participant, the fiduciary must consider the use of additional search methods, including Internet search tools, commercial locator services, credit reporting agencies, information brokers, investigation databases, and other services that may involve charges.  Whether to use additional search methods is a fiduciary decision that should take into account the size of the benefit and the amount of the additional expense.  All decisions made the plan administrator to locate participants whose whereabouts are unknown and distribute their accounts should be recorded in written or electronic form so that the plan administrator can demonstrate to the DOL’s satisfaction that it has satisfied its fiduciary duty to locate the missing participants.  The DOL guidance underscores that such decisions are fiduciary decisions and not merely administrative decisions.

Key Takeaways.  Although the new DOL guidance regarding missing participants is intended for use by fiduciaries of terminated defined contribution plans, the guidance can be equally useful to the administrators of non-terminated defined contribution and defined benefit plans.  Plan fiduciaries now have an obligation to use the DOL’s four required steps to locate missing participants.  A fiduciary’s decision to follow these steps and, if warranted, use additional search methods is a matter of fiduciary duty, and not merely an administrative decision.

If you have any questions or concerns regarding this communication, please do not hesitate to call Allotta | Farley Co., L.P.A. at (419) 535-0075 or email

Friday, September 26, 2014

IRS Releases Draft Forms for Reporting Health Coverage

The Internal Revenue Service has released draft forms that employers will use to report the health coverage they offer their employees. The draft Form 1095–B, Health Coverage, and Form 1095–C, Employer-Provided Health Insurance Offer and Coverage, were posted to the IRS's website July 24, 2014.

Form 1095–B collects information under tax code Section 6055, which under the Affordable Care Act (ACA) sets the standards for reporting information on whether plans meet minimum essential coverage.

Form 1095–C falls under the jurisdiction of Section 6056, which lays out the requirements that must be followed by employers with the equivalent of at least 50 full-time employees to report whether they offer employees coverage that meets minimum value and affordability standards.

The reporting relates to the ACA's employer mandate, which, when it fully goes into effect, will require these employers to offer such coverage or potentially face penalties.

The IRS released a the following statement:  “In accordance with the IRS' normal process, these draft forms are being provided to help stakeholders, including employers, tax professionals and software providers, prepare for these new reporting provisions and to invite comments from them. We anticipate that draft instructions relating to the forms will be posted to in August. Both the forms and instructions will be finalized later this year,”

The IRS also released draft versions of two related forms, Form 1094–B, Transmittal of Health Coverage Information Returns, and 1094–C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns.

Comments on the draft version of the forms can be made on the IRS website at

Thursday, July 31, 2014

Not All Injuries Need Medical Records to Prove the Claim

 A recent Ohio case provided a reminder that not all injuries require proof from a medical provider that injury was caused by the accident in question.  The First District Court of Appeals reiterated a long held doctrine that when the injury and subsequent physical disability involves questions which are matters of common knowledge, medical evidence is not necessary for a jury to decide the case.  The case in question involved a man who injured his eye when a piece of concrete hit him while using a jackhammer.   The Court said “You don’t need a doctor to tell you that a cut is likely to result if a piece of concrete, displaced by a jackhammer, flies up, breaks ones glasses and hits the eye.”  Even so medical evidence and testimony is always used, unless a mistake occurs, because what may be common knowledge to you might not be to the court hearing the case.  

Friday, July 11, 2014

QDIA--A Well-Guarded Parking Lot for Plan Participants and a Safe Harbor for Trustees

While many fund trustees, fiduciaries and investment managers spend inordinate amounts of time pouring over investment returns, diversification strategies and risk matrices to find the optimal rate of return for their defined contribution plans (401(k) and profit sharing plans), participants in these plans struggle to make investment decisions. When faced with the opportunity to self-direct their 401(k) or profit sharing plan contributions, they hesitate.  In fact, many participants experience such a huge sense of inertia that they abdicate their right to elect investments of their plan balances to the plan sponsor.  Such inaction then places an additional fiduciary duty on plan trustees and committees to protect the retirement balances of these participants from a significant risk of loss.

Before the Pension Protection Act (PPA) in 2006, lack of participant involvement commonly meant that plan sponsors “parked” participant account balances in default investments until they felt comfortable making their own choices.   These default investments, while they were in low-risk categories,  garnered lower rates of return that often did not even keep up with inflation. Consequently, retirees’ account balances were inadequate to support them in their golden years.  As part of the PPA, the Department of Labor (DOL) addressed this problem with regulations under section 404(c)(5) of the Employee Retirement Income Security Act (ERISA), creating the qualified default investment alternative (QDIA).  The QDIA now enables fiduciaries to implement more aggressive investments when participants fail to make their own investment elections without violating their fiduciary obligations. 

But don’t assume that the DOL gave plan trustees and committees total freedom when choosing QDIAs as part of their plan’s investment menu. Quite the contrary is true due to the narrowly defined guidelines and options specified in  ERISA’s Section 405(a) regulations.  Among other restrictions, only three investment options are allowable for long-term QDIAs: target-date funds (TDFs), managed accounts and balanced funds. Each has its advantages and disadvantages with different costs, reporting issues and levels of customization for participant groups.  However, the main goal for trustees and committees when choosing a QDIA should be diversification to minimize the risk of large losses to participants’ accounts. 

To reinforce their due diligence in making QDIA choices, many plan trustees request unofficial approval letters from qualified legal counsel to ensure that a QDIA meets the parameters defined in the ERISA regulations and fits the description of either a TDF, a balanced fund or an appropriately individually managed account.  They get guidance on their process in communicating their QDIA option to participants and beneficiaries.  Formal review from legal counsel may provide trustees with proof that they did their  fiduciary “homework” in choosing a QDIA while remaining compliant with current regulations and making decisions for the exclusive purpose of providing benefits for participants and beneficiaries. 

Ultimately, when choosing a QDIA option, plan sponsors must consider several questions to determine which selection best fits their plan participants:

  • What is the aggregate age of our workforce or participant group?
  • What is the average age of retirement for our workforce?
  • Is there a general risk tolerance that applies to our workforce?
  • Is our QDIA selection designed to outpace inflation?
  • Does our QDIA selection consistently insulate participant accounts from risk of large losses with a diversification strategy?

By navigating these questions, focusing on guidelines set out by section 404(c)(5) of ERISA and consulting legal counsel to ensure that the criteria for QDIA status are met, trustees will have fewer allegations from participants that their retirement balances were defaulted or “parked” in inappropriate investment vehicles.  

Tuesday, June 24, 2014

Make sure your claim is filed!

Two times within the past week I have been contacted about a work related injury that was several weeks to a couple months old.  When I asked what had been done by the BWC or the self-insured employer regarding processing the claim the injured worker had no idea whether they even had a claim that was established.  The first thing to check out is making sure that the BWC has gotten the claim form and that it has started gathering the information for granting the claim.  A call to 1-800-(ohiobwc) can ascertain if a claim has been filed and what your is your claim number.  If the employer is self-insured you should ask their Workers Compensation Administrator or (if they don’t have one) their Third Party Administrator (the firm they pay to handle these claims) what is being done with the claim.  Without knowledge of where your claim is in the process you can not provide important information to your doctors, therapists, etc who may need this information in order to know what and with whom to file any paperwork to allow them to help in the treatment of your injury.  

Thursday, May 15, 2014

New Law Repeals the Affordable Care Act’s Annual Deductible Cap for Small Group Policies

Congress has passed, and the President has signed, the Protecting Access to Medicare Act of 2014 to postpone changes to the formula used to determine the amounts Medicare pays physicians for services. While the primary focus is Medicare, the legislation contains other provisions not directly related to Medicare, including elimination of the Affordable Care Act’s limitations on annual deductibles.

As background, starting in 2014, the ACA established maximum annual deductibles of $2,000 for a plan covering a single individual and $4,000 for any other plan (indexed for increases in health insurance costs). In the preamble to final regulations issued in February 2013, HHS had clarified that these limits would apply only to the small group insurance market—not to self-insured employer plans or to the large group insurance market. Elimination of the deductible limits is effective “as if included in the enactment” of health care reform, essentially treating the limits as though they had never been part of the law.

The legislation also makes a change to HIPAA’s electronic transaction standards; delaying adoption of ICD-10 medical data code sets (updated codes used to classify diseases and health problems) until at least October 1, 2015.  HHS regulations had previously delayed the ICD-10 compliance date from October 1, 2013 to October 1, 2014. Covered entities now will have another year to prepare for the transition from ICD-9 to ICD-10 codes.

Tuesday, May 6, 2014

Internal Revenue Service Issues Guidance Addressing Retroactive Impact of Same-gender Marriage Ruling on Retirement Plans

On June 26, 2013, the United States Supreme Court, in a much anticipated opinion, United States v. Windsor, 570 U.S. 17 (2013), ruled that the federal Defense of Marriage Act (“DOMA”), which defines marriage as a union between a man and a woman for purposes of deciding who can receive a range of benefits under federal law, contravenes the United States Constitution.  The main argument of the DOMA opponents was that under DOMA, the rights of same-gender couples who are legally married under state law (in a state in which same-gender marriages are legal) to receive federal benefits are not recognized, and thus their right to equal protection of laws under the Fourteenth Amendment’s equal protection clause is violated.

Windsor’s Impact on Definition of “Spouse” under Federal Law.  The immediate impact of the Supreme Court’s Windsor decision was that the term “spouse,” when used in a federal law, must include same-gender spouses who are legally married in a state that recognizes same-gender marriages.  Employee benefit plans are extensively governed by a myriad of federal laws, including the Employee Retirement Income Security Act of 1974 (“ERISA”) and the Internal Revenue Code (“Code”).  Under these federal laws, the definition of “spouse” is integral to important benefits that are conferred exclusively on spouses.

Initial Internal Revenue Service Guidance.  Following the issuance of the Supreme Court’s opinion in Windsor, plan administrators raised questions about Windsor’s application to retirement plans that are tax-qualified under the Code.  On August 29, 2013, the Internal Revenue Service (“IRS”), in response to such questions, issued IRS Revenue Ruling 2013-17.  Pursuant to IRS Revenue Ruling 2013-17, same-gender couples who are legally married in a domestic or foreign jurisdiction that recognizes their marriage must be treated as married for federal tax purposes, regardless of where they reside.  The ruling was effective as of September 16, 2013 and covered all federal tax provisions in which marriage is a factor, including employee benefits.  Thus, effective September 16, 2013, a tax-qualified retirement benefit plan was required to follow the “place of celebration” rule in determining the validity of a marriage.  Concurrently, the IRS issued Frequently Asked Questions (“FAQs”) for same-gender couples and updated FAQs for registered domestic partners and individuals in civil unions that reflect the guidance in IRS Revenue Ruling 2013-17.  The ruling specifically noted that the IRS would issue further guidance addressing any retroactive impact of Windsor on employee benefit plans.

Subsequent Internal Revenue Service Guidance.  Responding to the need for guidance on Windsor’s retroactive application to tax-qualified retirement plans, the IRS, on April 4, 2014, issued IRS Notice 2014-19.  This notice provides the following guidance concerning Windsor’s retroactive application to such plans:

1.     Tax-qualified retirement plans must recognize valid same-gender marriages for spousal consent elections, minimum survivor benefits, eligibility for joint and survivor annuities, and other protections afforded to eligible spouses under federal law.

2.     Tax-qualified retirement plans are not required to apply Windsor to employees with same-gender spouses prior to June 26, 2013.  If a plan does not wish to recognize same-gender spouses prior to that date, the IRS will not seek penalties or disqualification on that basis.  A plan may, however, be revised to reflect the Windsor decision for some, or all, purposes prior to June 26, 2013, as long as the plan continues to satisfy discrimination testing and all other tax-qualification requirements under the Code.

3.     Tax-qualified retirement plans are permitted to determine whether an employee has a same-gender spouse during the period between June 26, 2013 and September 16, 2013—before the IRS had issued guidance under Windsor—by reference to either the law in the jurisdiction where the marriage was celebrated or in the jurisdiction in which the couple lives.

Key Takeaways.  The general effect of the guidance in IRS Notice 2014-19 is to limit the retroactive application of Windsor to June 26, 2013, i.e., the date on which the United States Supreme Court issued its ruling.  However, plan sponsors still face some potential risks.  In particular, even though the guidance provides relief from IRS sanctions for a plan’s failure to recognize same-gender marriages prior to Windsor, or for using the law of the state of residence to determine whether a marriage will be recognized prior to September 16, 2013, the guidance would not necessarily preclude a same-gender spouse’s claim for a benefit with respect to a participant who died before that date.

Thursday, May 1, 2014


A well-run health and welfare or retirement plan should certainly maintain various policies to guide plan trustees in how their plan operates. But since “one size does not fit all,” plan policies also demonstrate to professionals who service the plan how trustees expect their plan’s unique circumstances to be handled.  One of the most essential blueprints for a plan’s successful operation is its investment policy guideline. 

Section 404(a) of the Employee Retirement Security Act (ERISA) requires that all trustees (who are also plan fiduciaries) discharge their duties according to the standard of a “prudent person” and act, “with the care, skill and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.”   This essentially requires trustees to have knowledge of plan investments and monitoring activities in a manner similar to professional investment managers.  Aside from being an ERISA mandate, this standard raises the level of responsibility for all trustees, especially when they consider investment choices and performance, the hiring and evaluation of investment managers.


Diversifying plan assets to minimize the risk of huge losses is a major component of exhibiting prudence by plan trustees.   The Department of Labor (DOL) suggested that one way to document a plan’s diversification goals is to formalize a plan’s investment policy guideline.  Such a written guideline provides trustees and service providers, such as investment managers, with a blueprint for investment decisions.  Most written investment policy guidelines contain several common provisions which include the following:

  • Benchmarks-Each investment category should have an accompanying goal or benchmark that it is compared to and the benchmark is used as a goal for each investment’s performance review and rating;
  • Investment Performance Reviews-Each investment must be reviewed at a pre-determined time period and documented each time it is reviewed to analyze whether each investment is performing in an acceptable manner to meet plan investment goals;
  • Risk Tolerance Ranges-the plan will clearly state how much risk will be acceptable to stay within the diversification rules of plan investments.  These ranges might refer to investment categories, such as equities or fixed income investments or types of investments within categories, such as international equities or long term bonds within the fixed income category;
  • Expected Rate of Return for all Plan Investments-Not only should an acceptable range of returns be projected for each investment, an expected return for the plan, when combining all investment returns collectively, should be documented;
  • Criteria for Evaluating all Investment Managers-Expectations forprofessionals hired to recommend and manage plan investments must be clearly specified to provide pathways for periodic evaluation and investment manager selection; and
  • Proxy Voting-criteria must be established to document, not only who will vote the proxies for a plan’s investment, but also what the decision-making blueprints will be for those that do the voting.

Once these elements are established within a plan’s investment policy guideline, a very important function must be performed by trustees and service providers—the policy written as a guideline for plan investments must be followed and if necessary, changed to meet plan changes or investment goal adjustments.  When seriously drafted, approved and monitored, trustees benefit in several ways from written investment policy guidelines.  Primarily, governmental entities like the DOL, along with incoming trustees and newly hired investment managers will realize that a plan’s trustees acknowledge their great responsibility, to act according to the Prudent Person standard, when handling the investment of plan assets.  Additionally, a written investment policy guideline will provide investment managers with clear goals, acceptable practices and projected expectations for proposed and continued decisions regarding required diversification of plan assets.  Finally, by drafting and monitoring investment policy guidelines, trustees provide plan participants and beneficiaries with confidence that their funded benefits are being seriously handled in a transparent manner. 

Tuesday, April 29, 2014

United States Court of Appeals Affirms District Court Ruling against Plan Fiduciaries

In a federal appellate court case that underscores the duty of plan fiduciaries to monitor service provider fees, a three-judge panel sitting in the United States Court of Appeals for the Eighth Circuit has affirmed a federal district court’s decision holding the plan administrator of an employer-sponsored 401(k) plan liable for failing to monitor the plan’s excessive recordkeeping fees.  The appellate court, however, vacated the district court’s $21.8 million judgment against the plan administrator on class action claims by plan participants challenging the plan’s investment options and the “mapping” of plan assets from Vanguard to Fidelity Management Trust Company (“Fidelity”).
The Eighth Circuit’s decision in Tussey v. ABB, Inc., No. 12-2056 (8th Cir. March 19, 2014) has four major components: 
  • plan interpretation by the plan administrator,
  • selection of plan investments by plan fiduciaries,
  • monitoring of service provider fees, and
  • “float income.”
Plan Interpretation.  The Eighth Circuit held that when a plan document grants the plan administrator discretion to interpret and construe the plan’s terms, courts must defer to the plan administrator’s interpretation of the plan so long as the plan administrator’s interpretation is reasonable.  Thus, the federal district court erred when it failed to grant any deference to the plan administrator’s determinations on matters that fell beyond the scope of benefit claims.  In reaching this conclusion, the Eighth Circuit rejected the participants’ claim that such deference should be limited to benefit claim determinations, and that courts should review other, non-benefit determinations de novo.  Instead, the Eighth Circuit joined the Ninth, Seventh, Sixth, Third, and Second Circuits in giving deference to the determinations of plan administrators on matters outside the scope of benefit claims.
Selection of Plan Investment Options.  The Eighth Circuit vacated the district court’s $21.8 million judgment against the plan administrator on the class action claims of plan participants who had challenged the plan’s fiduciaries on their investment option selections and the “mapping” of plan assets from Vanguard to Fidelity.  In 2000, the plan’s fiduciaries decided to remove the Vanguard Wellington Fund (“Wellington Fund”) as an investment option and replace it with Fidelity Freedom Funds (“Freedom Funds”).  The fiduciaries accommodated those participants whose account balances included money in the Wellington Fund and who had not specified an alternate investment for their balances by mapping funds held in the Wellington Fund to the age-appropriate Freedom Funds.  Between 2000 and 2008, the Wellington Fund outperformed the Freedom Funds.  Based on this performance disparity, the lower court found that the plan’s fiduciaries had breached their duty to the participants by substituting the Freedom Funds for the Wellington Fund.
On appeal, the Eighth Circuit ruled that the reasonableness of the plan’s investment choices must be determined on the basis of what the fiduciaries knew at the time the investment options were selected, and not the options’ subsequent performance.  Because it was unclear from the record whether the district court had afforded appropriate deference to the plan administrator’s interpretation of the plan document with respect to the selection of the plan’s investment options, the Court of Appeals vacated the $21.8 judgment on the participants’ class action claims and remanded the claims for further consideration by the district court.
Monitoring of Service Provider Fees.  The district court had ruled that the plan fiduciaries violated their fiduciary duty “when they agreed to pay Fidelity an amount that exceeded market costs for [p]lan [recordkeeping] services in order to subsidize the [other] corporate services provided to [the plan sponsor] by Fidelity, such as [the plan sponsor’s] payroll and recordkeeping for [the plan sponsor’s] health and welfare plan and its defined benefit plan.”  Based on this breach of fiduciary duty, the district court awarded the participants $13.4 million in damages. 
On appeal, the plan fiduciaries argued that the district court’s finding on this point was in error because the district court had implied that certain business arrangements, such as the bundling of investment management and recordkeeping services through a single provider, were automatically improper.  The Eighth Circuit rejected this interpretation of the district court’s finding.  Relying on the record, the Eight Circuit ruled that the fiduciaries’ failure to take any action or make any investigation of Fidelity’s recordkeeping fees after two key events—after Fidelity had informed the fiduciaries that Fidelity was providing other services to the plan administrator for free or at below market cost and after an outside consulting firm had advised the fiduciaries that Fidelity was overcharging the plan for recordkeeping fees—adequately supported the district court’s finding.
Float Income.  The Eight Circuit panel was divided on the issue of so-called “float income,” with two of the judges voting to reverse the district court’s $1.7 million judgment against Fidelity’s generation of interest on plan contributions and disbursements held temporarily in overnight accounts—so-called “float” income—and Fidelity’s failure to remit this interest to the plan.  The question before the panel was whether Fidelity’s use and treatment of the float—its failure to distribute the float and float interest to the plan itself instead of the investment options—violated Fidelity’s fiduciary duty of loyalty to the plan under the Employee Retirement Income Security Act of 1974 (“ERISA”).
Resolution of this question turned on whether float is a “plan asset” under ERISA.  Although ERISA does not exhaustively define the term “plan assets,” the United States Secretary of Labor has repeatedly defined the term “plan assets” in accordance with ordinary notions of property rights.  In Tussey, the participants failed to adduce any evidence that the plan had any property rights in the float or float income.  On the contrary, the record showed that when a contribution was made, Fidelity credited the participant’s separate account, and the plan became the owner of the shares of the selected investment option—typically shares of a mutual fund—the same day the contribution was received.  The plan received the full benefit of ownership—including any capital gains or dividends from the purchased shares—as of the purchase date. The participants failed to rebut Fidelity’s assertion that once the plan became the owner of the shares, the plan was no longer also the owner of the money used to purchase the shares, which flowed to the investment options through the depository account held for their benefit.  Based on the record, the majority concluded that the plan’s investment options—as opposed to the plan—held the property rights in the depository float and that the investment options were entitled to the float income.  Accordingly, since neither the float nor the float income was a plan asset under ERISA, Fidelity could not have breached its ERISA fiduciary duty to the plan for its handling of float and float income.
Key Takeaways.  Although the Eighth Circuit upheld the $13.4 million judgment against the fiduciaries for their failure to adequately monitor recordkeeping fees, several elements of the Tussey opinion are supportive of a broader view of the discretion granted to plan administrators in interpreting the plan document.  The opinion supports the notion that the plan administrator’s discretion in interpreting the plan document goes beyond benefit claims, extending to areas such as the selection of plan investment options in a 401(k) plan.  The opinion also serves as a warning to plan fiduciaries, however, that hiring a market leader, such as Fidelity, in the plan recordkeeping business is not sufficient in itself to discharge their fiduciary duties.  Fiduciaries must scrutinize the actions of even reputable service providers and investigate information tending to show that the plan is being overcharged for professional services.

Friday, April 25, 2014

Federal Court in Virginia Rejects Challenge to IRS Rule Concerning Federal Exchanges

A second federal court has ruled that IRS did not exceed its authority by promulgating a rule that allows individuals who buy health insurance from federally facilitated exchanges, as opposed to state-run exchanges, to be eligible for tax credits under ACA. The case is (King v. Sebelius, E.D. Va., No. 3-13-cv-630, 2/18/14). The court dismissed a complaint asserting that the Affordable Care Act provides for such subsidies only when individuals buy insurance on state-created exchanges or marketplaces. Thirty-four states, including Virginia, have opted not to operate their own exchanges.

The decision aligns with that of the U.S. District Court for the District of Columbia, which on Jan. 15 granted the Obama administration's motion for summary judgment in a similar case. That decision, Halbig v. Sebelius, is on a fast-track appeal to the U.S. Court of Appeals for the District of Columbia Circuit. Briefing was completed Feb. 20, and oral argument took place on March 25. Two other cases involving the same issue are pending in federal courts in Indiana and Oklahoma.

At issue is an IRS rule that grants eligibility for subsidies to anyone “enrolled in one or more qualified health plans through an Exchange,”26 C.F.R. § 1.36B-2(a)(1). The ACA set up the exchanges as a means for individuals who weren't able to obtain health insurance elsewhere to have access to affordable coverage. Although Congress intended for exchanges to be created and operated by the states, the ACA gives the federal government a mechanism to create an exchange in a state that opts not to do so.

To ensure health plans are affordable, the ACA provides subsidies, also known as tax credits, for individuals for whom coverage would cost more than 8 percent of their annual household income. The exchange pays the amount of the credit directly to the insurer, thus lowering the net cost of the insurance. These are known as Section 36B tax credits.

The plaintiffs contended that the tax credits are available only to those who buy insurance on state exchanges and, therefore, the IRS exceeded its authority in promulgating a rule that grants eligibility to individuals who buy insurance on federally funded exchanges. They relied on the language of one provision of the ACA, 26 U.S.C. § 36B (b)(2)(A), which says an individual who buys insurance “through an Exchange established by the State” under 42 U.S.C. § 18031, also known as Section 1311, is eligible for the credits.

The government said the plaintiffs' argument “defies common sense,” and moved to dismiss the complaint. The government said the ACA was intended to give access to insurance to people who otherwise might not be able to afford it. According to the government, limiting tax credits to individuals who live in states with active exchanges would be contrary to that goal.

In granting the motion to dismiss, the court said that, when viewed “in a vacuum, it seems comprehensible that the omission of any mention of federally-facilitated Exchanges under section 36B(b)(2)(A) could imply that Congress intended to preclude individuals in federally-facilitated Exchanges from receiving tax subsidies. ”However, when statutory context is taken into account, Plaintiffs' position is revealed as implausible.”

The court construed the law in accordance with Chevron U.S.A., Inc. v. Natural Resources Def. Council, Inc., 467 U.S. 837, (1984). Under Chevron, a court first must determine whether it can ascertain the plain meaning of the statute from its language, or whether the law is ambiguous. If the law is silent or ambiguous, then the court asks whether a regulation implementing it represents a reasonable construction of the statute.  The court stated:  “At first blush,” the plaintiffs' argument that Congress intended only to allow subsidies to individuals who buy insurance on state exchanges seems reasonable, the court said. But courts “have a duty to construe statutes as a whole.”

The ACA provides that if a state fails to establish an exchange by Jan. 1, 2014, the Health and Human Services Department will create “such Exchange,” defined in the statute as “an American Health Benefits Exchange established under” Section 1311, the court noted. The law doesn't make a distinction between the two types of exchanges.

Moreover, the court said a number of “statutory anomalies” would arise if the court were to adopt the plaintiffs' reasoning. For example, no one in a state with a federally facilitated exchange would be considered a “qualified individual” to purchase insurance under Section 1312, 42 U.S.C. § 18032, because Section 1312(a)(1) limits eligibility to individuals living in states with state-operated exchanges.  The court also noted that Section 36B(f)'s reporting requirements would be rendered a nullity in states with federally facilitated exchanges.

The court also found no direct support for the plaintiffs' argument that Congress deliberately tied the tax credits to state exchanges in order to prompt states to set up those exchanges as a condition to receiving federal funding. The court stated that if Congress had intended to condition subsidies on state participation, it would have had to give clear notice of that intention to the states. The court said that while the plaintiffs' “common sense” interpretation had a “certain appeal, the court also said “The lack of any support in the legislative history of the ACA indicates that it is not a viable theory.” The court also found that the ACA's legislative history shows that Congress intended to give the states the option of creating their own exchanges, “rather than an intent to coerce or entice states into participating,”

In any case, the court found the IRS rule was entitled to deference under Chevron, as it was a reasonable interpretation of the statute stating: “In light of the applicable legislative history of the ACA and the above discussion of the anomalous consequences of Plaintiffs' reading of the ACA,” the government presented a reasonable interpretation of the law.

The Halbig decision is on a fast-track review in the D.C. Circuit, and the plaintiffs in the present case Feb. 19 filed a notice of appeal to the U.S. Court of Appeals for the Fourth Circuit.  The plaintiffs are considering asking the appeals court to expedite review there as well.

Tuesday, April 22, 2014

Know Your Rights!

When it comes to discipline in the workplace, one of the most important rights that a Union member can exercise is their “Weingarten right.”  Named after the Supreme Court case that established the right, the Weingarten right ensures that a Union employee can have Union representation during any investigatory interview that may result in discipline.  This right can be exercised either before the interview has begun or at any time during the interview. 

To exercise the right, the interview must be “investigatory.”  Weingarten does not attach if the employer calls you into a meeting simply to tell you that you are being disciplined.  Weingarten does attach if you are being asked to explain or defend your conduct or are being compelled to answer questions or give evidence.  In essence, anytime a reasonable person could believe that the meeting may lead to future disciplinary action or questions are related to pending disciplinary action you have the right to Union representation. Importantly, you must request Union representation!  The employer has no obligation to provide you with Union representation if you don’t request it, nor does the employer have to tell you that you have a right to Union representation.

Once you have invoked Weingarten and asked for Union representation, the Employer has three choices. 1) The employer can grant the request and wait for the Union representative to arrive and have a chance to consult with you prior to continuing the interview; 2) the employer can deny the request and end the interview immediately; or 3) give the employee a choice of either having the interview without representation or ending the interview.  If the employer chooses option three the employee cannot be punished for choosing to end the interview.  If the employer refuses the request for representation and attempts to continue the interview it is committing an unfair labor practice.  The employee can refuse to answer any questions that the employer asks after making such a refusal but may be required to sit there until the employer terminates the interview.  Any information that is gathered after an employee’s Weingarten rights have been violated will be excluded from evidence in any disciplinary action.

It is important to remember that you have a right to Union representation during any investigation.  The Union representative can help to determine what the subject of the investigation is, consult with you before the questioning begins, advise you on how to answer the questions, and provide additional information to the employer at the conclusion of the interview. Having a Union representative present helps to ensure that you are treated fairly and aids the Union in its fact gathering mission if you would face disciplinary action later on.  

As a general rule, anytime you are having discussions with your employer request a Union representative!  Even if the Weingarten rule does not apply most employers will allow you to have a Union representative present if you ask for one.  When approached by an employer, start any interview or meeting with the following statement, “If this discussion could in any way lead to my being disciplined or discharged I request that my Union representative be present at the meeting.  Without representation, I choose not to answer any questions.”

If you think your employer has violated your Weingarten rights, contact your Union immediately!

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