Illinois ERISA Lawyer Blog

There appears to be a widespread assumption among employees and executives in Chicago and the rest of Illinois that severance plan benefits are only available if a worker loses his or her job. While this is often the case, it is not always the case. What event or events trigger an entitlement to severance plan benefits truly depends on what the plan says triggers such entitlement. Often, plans condition eligibility for severance plan benefits upon an involuntary termination of service. In addition, many plans state such termination cannot be for "cause." Again, what defines "cause" can vary from plan to plan, and is almost always found in a written plan document if the plan is covered by ERISA. (For more information on ERISA coverage of severance plans, click here).

Some plans, however, provide more generous eligibility for severance benefits, which take into account some measure of a reduction in earnings. Such is the case with one severance plan which covered former Kos Pharmaceutical employees who became employees of local pharmaceutical giant, Abbott Laboratories. The Kos/Abbott plan referenced provides for benefits even if a covered employee terminates his or her own employment for "Good Reason." Adair v. Abbott Severance Plan for Employees of Kos Pharmaceuticals, 2011 U.S. Dist. LEXIS 18696, at *2-3 (D.N.J. Feb. 24, 2011). The plan defines "good reason" as involving a 10% reduction in the participant's base salary, or any "material reduction" in the total cash compensation the participant is "eligible to earn." Alternatively, "good reason" can include a demotion or certain reductions in job responsibilities. Abbott's interpretation of this language has been the subject of controversy in recent cases. Id.; Veltri v. Abbott Severance Pay Plan for Employees of Kos Pharmaceuticals, 2010 U.S. Dist. LEXIS 5374 (D.N.J. Jan. 25, 2010).

If you think you may be entitled to severance benefits even though you have not lost your job, consult an attorney well versed in ERISA.

This is an issue that has surely plagued every employee, executive or partner in Chicago and the metropolitan area before. You have health insurance coverage through a group plan at work. The plan is administrated by an insurance company, or your employer purchases insurance coverage. All written materials you receive tell you to either get pre-authorization for coverage or to call customer support to determine if a particular procedure or treatment is covered. You do just that, and are told the surgery you need is covered, only to be stuck with an outrageous hospital and surgeon bill afterwards when the insurer tells you the plan does not include coverage for that procedure.

This exact thing happened to Deborah Kenseth. Ms. Kenseth sued Dean Health Plan, Inc. after the HMO refused to pay for her surgery that left her with $77,000 in medical bills. All materials Dean Health provided to Kenseth advised her to call customer service to determine if a procedure would be covered. Never did any written materials provided to Kenseth suggest that the customer service representatives' statements are non-binding. After the District Court for the Western District of Wisconsin granted summary judgment for Dean Health, Kenseth appealed. The Court of Appeals for the Seventh Circuit remanded the case to the district court to determine whether the relief Kenseth sought, payment of her medical bills, was proper equitable relief under ERISA § 502(a)(3).

Just recently, the District Court granted summary judgment again to Dean Health, stating "Defendant has refused to provide her any relief after lulling her into believing that she had coverage for an expensive operation, only to reverse course after the procedure was performed, leaving her with a stack of medical bills. Many might be surprised to learn that defendant has no legal duty to make things right under those circumstances." Kenseth v. Dean Health Plan, Inc., No. 08-1, Slip Op. at 4 (W.D. Wis. Feb. 14, 2011). The court held that the remedy Kenseth sought, to "hold her harmless for the cost of her surgery and treatment", id. at 3, was a claim for compensatory damages not allowed under ERISA § 502(a)(3).

The Department of Labor has involved itself in this case as Amicus Curiae, or friend of the court, to argue on behalf of Ms. Kenseth alongside her own counsel. We hope to see this case taken up on appeal again to the Seventh Circuit. While many would agree with the district court that money is not an available remedy for a breach of fiduciary duty action under 502(a)(3), the line of caselaw used to support that proposition did not apply the rationale to a fiduciary making a misrepresentation to a single plan participant or beneficiary. If her argument is presented properly, Ms. Kenseth appears to have a good chance of success on appeal. If something similar has happened to you, seek the advice of an ERISA lawyer who can navigate you through the maze of ERISA.

Workers and retirees all over Chicago and the rest of Illinois may soon receive more protections from the Department of Labor. The Department of Labor has issued an agenda for the upcoming hearings on the proposed new definition of "fiduciary" for purposes of ERISA. In October 2010, the DOL issued a proposed regulation modifying the definition of "fiduciary" for purposes of ERISA. 75 Fed. Reg. 65,263 (Oct. 22, 2010).

Among other things, the regulation would expand the definition of fiduciary to include investment advisors and valuation experts it previously did not define as fiduciaries. Under ERISA, a person is a fiduciary with respect to a plan to the extent that "he renders investment advice for a fee or other compensation, direct or indirect, with respect to moneys or other property of such plan, or has any authority or responsibility to do so . . . ." ERISA § 3(21)(A)(ii). This is by no means the only way one can become a fiduciary of a plan, though.

The DOL promulgated regulations in 1978 refining what it meant to "render investment advice for a fee." 29 C.F.R. § 2510.3-21. The DOL noted that currently, in order to render "investment advice for a fee", an adviser who does not have discretionary authority or control with respect to buying and selling plan assets must satisfy a 5-part test, in that he must: (1) render advice as to the value of securities or other property, or make recommendations as to the advisability of investing in, purchasing or selling securities or other property (2) on a regular basis (3) pursuant to a mutual agreement, arrangement or understanding, with the plan or a plan fiduciary, that (4) the advice will serve as a primary basis for investment decisions with respect to plan assets, and that (5) the advice will be individualized based on the particular needs of the plan. 29 C.F.R. § 2510.3-21(c).

Under the proposed regulation, many investment advisers currently evading fiduciary status would fall under the fiduciary umbrella. The proposed regulation requires only that a registered investment adviser who does not have discretionary authority or control with respect to buying and selling plan assets: (1) Provides advice or recommendations regarding the value, buying, selling, holding, or management of securities or other property (2) to a plan, plan fiduciary, participant, or beneficiary. Should this proposed regulation become enacted, we can expect to see more investment advisers named as defendants in breach of fiduciary duty ERISA lawsuits. If you would like questions answered regarding who is a fiduciary of the plan in which you are a participant or beneficiary, speak to somebody knowledgeable about ERISA.

Workers in Chicago and the Midwest now have even more compelling of a reason to consult an ERISA lawyer before signing a severance agreement. In late January, the United States Court of Appeals for the Seventh Circuit rendered an opinion in Howell v. Motorola, Inc., No. 07-3877, 2011 U.S. App. LEXIS 1193 (7th Cir. Jan. 21, 2011) holding that any member who signed a release as part of a severance agreement after being terminated from employment could not pursue a claim against the former employer or the plan for a breach of fiduciary duty--even if that breach of fiduciary duty resulted in a denial of benefits due.

The case stemmed from Motorola's offering of employer stock as part of its participant-directed 401(k) plan. In 1999, Motorola involved itself, though an affiliate, in a lending deal with a Turkish telecom company, Telsim, whereby Motorola loaned Telsim $1.8 billion. Telsim pledged a number of shares of its own stock as security. Prior to July 1, 2000, Motorola only had 4 options in its 401(k) plan, employer stock being one of them, and the plan limited participants to investing no more than 25% of their account balances in employer stock. Thereafter, Motorola began offering 9 different options, including employer stock, but lifted the restriction so that employees could invest 100% of their retirement savings in Motorola stock.

In April 2001, Telsim missed the first repayment deadline and had diluted the stock that served as collateral for the Motorola loan, and as Motorola released more information about the Telsim deal, the stock price declined. The plaintiffs alleged that Motorola did not adequately disclose the terms of the Telsim deal or the risk to which Motorola was exposed, and that as more information was released regarding the deal, the stock price declined.

The Seventh Circuit held Howell's claims against Motorola were dismissed because he signed a release as part of a severance agreement that would release Motorola from any past breaches of fiduciary duties under ERISA. Even though Howell tried to argue that his claim was really one for benefits due under ERISA 502(a)(1)(B), the court nevertheless dismissed. This case demonstrates precisely why it is so important to consult an attorney versed in ERISA prior to signing any severance agreement.

After Illinois' recent passage of the Religious Freedom and Civil Union Act, some Chicago and Illinois workers are wondering whether their partners in a civil union will now be covered under health insurance. As is often the case, the answer is maybe. The Illinois law provides couples in a civil union with the same rights and benefits as those that married couples have. What is critical, however, is whether the health insurance plan is one that is covered by ERISA or not.

Under section 3(1)(B) of ERISA, a covered welfare plan is "any plan, fund, or program . . . established or maintained by an employer . . . for the purpose of providing for its participants or their beneficiaries . . . any benefit described in section 186(c) of this title . . . ." Health care is a benefit described in section 186(c). Also important is that ERISA preempts "any and all State laws insofar as they relate to any employee benefit plans". ERISA § 514(a). However, ERISA's savings clause excepts from coverage under ERISA any State law regulating insurance. ERISA § 514(b)(2)(A).

So if you buy private health insurance in Illinois, the Civil Union Act will apply to your health insurance. In addition, if you are covered by group health insurance at work, and your employer pays premiums to an insurance company for the coverage, the Civil Union Act will also apply because the State law is not preempted as applied to such group health insurance under Metropolitan Life Insurance Co. v. Massachusetts, 471 U.S. 724 (1985). If, however, your employer provides health coverage, but the employer maintains a self-funded plan--typically only seen with large employers--then the employer is free to choose whether to cover same sex partners or not. Because such self-funded health care plans are squarely ERISA plans, they need not incorporate a party in a civil unions in their definitions of "spouse".

It is often difficult to tell whether your employer has a self-funded plan or not, because it will still charge you for the coverage, and usually have an insurance company administer the plan, making it appear just like the employer buys the coverage. If you need to know whether your employer's health care plan is governed by ERISA and whether it must cover partners in a civil union, contact an experienced ERISA lawyer.

After Illinois' recent passage of the Religious Freedom and Civil Union Act, some Chicago and Illinois workers are wondering whether, or even assuming that, their same sex partners will be financially provided for in the event the worker predeceases the partner. As is often the case, the answer is maybe. The Illinois law provides couples in a civil union with the same rights and benefits as those that married couples have, such as hospital visitation rights, the ability to make medical decisions, adoption and parental rights, inheritance rights, and some pension benefits. What is critical, however, is whether the pension rights are created by state law or by ERISA.

In 1996, the United States Congress passed, and President Clinton signed, the Defense of Marriage Act. Under that federal law, for purposes of any other federal law, marriage is defined as being between one man and one woman. So if your pension is provided by a private employer such as an airline, auto manufacturer, or by your union, then the Civil Union Act will not allow your same sex partner to become a "surviving spouse" entitled to continued payment of your pension if you pass away because such pensions are governed by ERISA, a federal law. The same can be said for Social Security Benefits. However, if you are one of the over 200,000 state or municipal workers in Illinois who will receive a pension, then yes, your same sex partner can become a "surviving spouse" under your pension if you enter into a civil union. If you need to know what law governs your retirement plan, contact an experienced ERISA lawyer today.