Illinois ERISA Lawyer Blog

Often, disabled employees and executives in Chicago and the Midwest call on a lawyer for help with a claim for disability benefits under a disability insurance policy provided by the employer. Nearly every claimant initially submits the claim himself. Only after being denied benefits does the claimant call a lawyer. Understandably, claimants are averse to paying an attorney fees to obtain benefits the claimant has a chance at obtaining on his own without engaging an attorney. Claimants commonly make one of two mistakes in the process, though.

The first mistake a claimant makes is waiting until after the final internal appeal has been denied to call a lawyer. Often claimants figure they will only need a lawyer if they have to file a claim in court. True, a claimant will be better served in court by engaging a lawyer than filing a complaint pro se, the odds of ultimately obtaining the benefits are dramatically higher when a lawyer is engaged earlier, during the administrative review process. After the final internal administrative appeal, no further documentation may be added to the claim file, dubbed the administrative record. 29 C.F.R. 2550.503-1(j)(3)-(5). Moreover, the time afforded for internal appeal will generally be 60 days. 29 C.F.R. 2550.503-1(h)(4). After a final denial, the plan will generally proscribe how much time a claimant has to file a complaint in court. Therefore, by the time the claimant calls the lawyer after the final appeal has been denied, the lawyer can add no additional supporting evidence, and will first need to investigate how much time he or she has to initiate a lawsuit (if the deadline has not already lapsed).

The other most common mistake made is calling a non-ERISA lawyer, such as one practicing primarily in personal injury or other labor and employment matters. ERISA cases are unique, and based upon highly technical statutes, regulations and court opinions. Successful navigation of a disability claim or claim for health benefits requires a lawyer intimately familiar with ERISA law, knowledgeable about what information to obtain and submit to the administrator and how to do so, and knowledgeable about the likelihood of success in court in light of the internal claims file and the claims administrator's denial letter (so the insurer knows you are on a level playing field with it).

The best course of action for a participant in a disability plan or health insurance plan making a claim for benefits due is to call an experienced ERISA lawyer before making the claim. Some offices will enter into a contingent arrangement, whereby you agree in advance to only engage the person upon a denial of benefits by the administrator. This saves you the attorney fees if you are successful in your initial claim, and prevents the loss of any time during that valuable 60-day window to obtain all other necessary documentation and appeal the denial. If you need to submit a claim for health benefits or disability benefits, call such an ERISA lawyer first and inquire about an engagement contingent upon being denied benefits.

Employees and executives in Chicago often ask what exactly the "out-of-pocket maximum" in their health insurance plan is. More often, participants in health insurance plans governed by the Employee Retirement Income Security Act of 1974 ("ERISA") merely assume they know what that term means.

Unlike other areas of law, such as Social Security, these terms in ERISA plans can vary in definition from plan to plan. Every plan will define that term, and the plan will place the responsibility on the participant to read and understand the plan's unique definition of "out-of-pocket maximum", among all the other definitions. Many plans require participants to call an eight-hundred telephone number for pre-authorization prior to having a surgery or other procedure, but it is crucial for the participant to also read about coverage, deductibles and out of pocket maximums in the plan, or the Summary Plan Description ("SPD") and schedule of benefits. A recent participant in a health insurance plan in the Midwest learned that lesson the hard way.

In Kitterman v. Coventry Health Care of Iowa, 632 F.3d 445 (8th Cir. 2011), the claimant had been diagnosed with ovarian cancer and her physician referred her to the Mayo Clinic. The participant called the plan's customer service, and learned that the Mayo Clinic was an out-of-network provider. Page 2 of the plan's schedule of benefits provided that the out-of-pocket maximum for nonparticipating health care providers was $8000 and $4000 for participating providers. The plaintiff asked the customer service representative whether she might have to pay more than the $8000 out-of-pocket maximum, but the representative merely told her to consult the schedule of benefits. The plaintiff then scheduled the procedure with Mayo Clinic, and underwent the surgery at a cost of about $45,000. Coventry paid just over $20,000 towards the procedure, leaving the plaintiff will a bill for nearly $25,000.

On the last page of the schedule of benefits, a clause purported to limit Coventry's liability by stating "Copayments and Charges that exceed our Out-of-Network Rate for Non-Participating Providers do not apply to your Out-of-Pocket Maximum . . . You are responsible for charges that exceed our Out-of-Network Rate for Non-Participating Providers." The district court held the schedule of benefits was a Summary Plan Description ("SPD"), and that the SPD did not adequately disclose the meaning of "out-of-pocket maximum." The Court of Appeals for the Eighth Circuit, however, reversed, holding when reading the definition of out-of-pocket maximum together with the limitation to pay claims based on out-of-network rates, the claimant received adequate disclosure of her benefits.

Continue reading "What Does "Out-of-Pocket Maximum" Really Mean?" »

Many employers in Chicago and the Midwest provide employees with various types of insurance in the benefits package, including life insurance and accidental death and dismemberment insurance ("AD&D"). Life insurance may be a standalone policy, but often AD&D is a portion of a larger policy that includes life insurance and AD&D. According to the Center for Disease Control, in 2007, unintentional accidental deaths were the fifth leading cause of death in the United States. While many people seem to know how their beneficiaries would recover under a life insurance policy, many employees and executives wonder what triggers benefits under an AD&D policy, and what can jeopardize those benefits.

Generally, AD&D policies will pay benefits in addition to life insurance if the death or dismemberment (often called the "loss") is the result of an accident taking place within a particular amount of time prior to the "loss." Deaths resulting from illness, suicide, or natural causes are generally not covered. In addition, most policies exempt from coverage any loss caused or contributed to by intentionally self-inflicted injuries. However, the language of exemption can vary from policy to policy. The question, though, is what exactly is a self-inflicted injury? Would it encompass voluntary engagement in high-risk behavior?

A participant of an insured under such a policy recently had to battle over this definition. In Martin v. Hartford Life & Accident Insurance Co., 2011 U.S. Dist. LEXIS 26920 (W.D.N.Y. Mar. 16, 2011), the claimant claimed benefits from Hartford due to the death of her husband, the insured. The insured had both life insurance and an AD&D policy with Hartford. Hartford paid the benefits under the life insurance policy, but denied the claim under the AD&D policy. It appeared clear the death was accidental, but the parties disagreed as to whether the death was the result of an "intentionally self-inflicted injury." Investigators determined that the cause of the insured's death was electrocution resulting from a self-administered electric shock with a homemade wire device apparently for recreational purposes.

Claimant's counsel argued the policy's exclusion did not apply, analogizing this case to Critchlow v. First Unum Life Insurance Co. of America, 378 F.3d 246 (2d Cir. 2003), which held a rock climber's death from accidental fall was the result of an intentionally self-inflicted injury. The court in Martin, however, upheld the insurer's denial of benefits, opining that the electric shocks were in fact an injury, and the injury was intentionally self-inflicted. The distinction, therefore, is between intentionally engaging in a behavior that brings risk of injury, and intentionally inflicting some injury (even if the injury is not intended to cause death). To many, this may appear to be splitting hairs, but such is the world of ERISA. If you have a question about coverage under a group life insurance or AD&D policy, call a seasoned ERISA lawyer.

Disability insurance plan participants in the Midwest and Chicago may be surprised to learn that a person with cancer claiming disability benefits through an employer's plan would have trouble obtaining the benefits. Why would anybody with such a debilitating condition receive a denial from a plan administrator for disability benefits? Disability plan administrators are much like high school geometry teachers grading proofs. They look for a step-by-step connection between the condition and the inability to work.

Individuals with cancer often develop other illnesses, conditions or syndromes collateral to the cancer itself that contribute to the disability. Sometimes that collateral condition is what makes the connection between the cancer and the inability to work. Disability plan administrators look primarily for objective record evidence of the limitation or restriction that causes a claimant to not be able to work. Absent such clear and objective evidence, the administrators will often deny the claim for benefits. Even if such a connection is made, administrators may still deny the claim, but a claimant is then better positioned to challenge the decision in court.

A recent claimant had to do just that in Spina v. CVS Long Term Disability, 2011 U.S. Dist. LEXIS 26311 (S.D. Ohio Mar. 2, 2006). Ms. Spina had stomach cancer, and underwent subtotal gastrectomy which removed 75% of her stomach, and attaching the remaining portion of the stomach directly to the small intestine. After surgery, Ms. Spina had several complications, involving several additional surgeries. After all surgeries, she completed courses of radiation and chemotherapy. Following the surgeries, Ms. Spina developed Dumping Syndrome because of the reduction in size of her stomach and its direct attachment to the small intestine. Because of the speed with which food Spina ingested would enter her small intestine, she developed severe diarrhea after meals. Spina also had to eat many small meals a day because of her reduced stomach size, and so her personal statement (submitted by video in this case) described her limitation because of the amount of time she spent in the washroom daily.

The physicians the plan retained to review the file concluded Spina was not disabled. The first physician opined the dumping syndrome was not "severe" enough because Spina had never been hospitalized for her diarrhea. The Court disagreed that one must be hospitalized from the effects of dumping syndrome in order for it to be severe. She also erred by opining that though the treating physician prescribed dietary modifications and medication, there was no evidence those orders were controlling the condition.

The plan administrator, Hartford Life and Accident Insurance Company, discounted Spina's video statement describing her condition because she had earlier told a doctor the dumping syndrome did not bother her too much when she was at home. The court, however, noted that Spina's ability to cope with the syndrome at home was not in issue--her ability to cope with it at work was. Also, the record did not demonstrate that there were any jobs that could accommodate the level of washroom use Spina required.

This was a classic case of the plan administrator looking to the absence of test results to prove an inability to work where common sense clearly showed an individual cannot go to work with the limitations the dumping syndrome imposed on Spina. If you have an illness, condition or syndrome that you believe qualifies you for benefits under your employer's disability plan, speak to an experienced ERISA lawyer.

Employees and executives in Chicago may still be experiencing frustration with ERISA long-term disability plan administrators when the worker qualifies for Social Security Disability Insurance benefits, yet is denied long-term disability benefits by his or her employer's disability plan administrator, or has the administrator terminate those benefits because the administrator claims the worker no longer qualifies for benefits under the plan's definition of "disability."

Many, if not all, plans provide that any benefits the plan pays the employee will be offset by any benefits received for Social Security Disability Insurance benefits. Some plans encourage, or even require, that the employee apply for such benefits. You may be troubled to learn that some plans then would not give consideration to the award of disability benefits to the employee by the Social Security Administration when reviewing a claim for benefits from the plan. The Supreme Court expressed such "serious concerns" in Metropolitan Life Insurance Co. v. Glenn, 554 U.S. 105, 118 (2008). It nevertheless still may occur in a variety of ways.

In one recent case, a self-funded long-term disability plan maintained by Qwest Communications Company actually required for an employee claiming benefits under the plan to apply for Social Security Disability Insurance Benefits. Torrey v. Qwest Communications Co., 2011 U.S. Dist. LEXIS 25587, at *3 (D. Colo. Feb. 28, 2011). The plan would then even hire a lawyer to apply for the benefits for the employee. Any retroactive award of benefits by Social Security for a time period that the plan had paid disability benefits to the employee would go straight to the plan, so that the employee recovered nothing from the Social Security Administration's award. In addition, the terms of the plan required an employee claiming benefits to also grant the plan authorization to automatically obtain any records from the proceeding before the Social Security Administration.

When the Qwest Disability Plan terminated Mr. Torrey's benefit payments, it did not give consideration to the fact that Mr. Torrey had been awarded benefits from Social Security, and did not even request the records from the Social Security Administration. The Court held in this case that the administrator failed to make adequate findings or failed to adequately explain grounds for the decision.

If you have questions about how a claim for Social Security Disability Insurance benefits will affect a claim for disability benefits under your employer's disability plan, consult an ERISA lawyer.

Yet another case in the Midwest (Wisconsin to be exact) went up on appeal to the Seventh Circuit Court of Appeals in Chicago where an employee sought the necessary pre-authorization for a surgery, received it from the health insurance administrator, and later the plan administrator denied coverage for the surgery. Strikingly similar to a case we previously covered, Kenseth v. Dean Health Plan, Inc., 610 F.3d 452 (7th Cir. 2010), the court was faced with a clear breach of fiduciary duty, but a difficult to ascertain remedy.

In Smith v. Medical Benefit Administrators Group, Inc., No. 09-3865 (7th Cir. Mar. 15, 2011), Mr. Smith alleged that the plan required him to notify the administrator and obtain pre-authorization before having any non-emergency surgery. Mr. Smith and his physician notified the administrator that Smith had been advised to undergo gastric bypass surgery to alleviate his congestive heart failure. Medical Benefit Administrators Group, d/b/a Auxient took 4 months, but nevertheless pre-authorized the surgery. Smith had the surgery, and 6 weeks later Auxient refused to pay for it, causing the hospital and doctors to bill Smith.

The Court wrestled with the lower court's dismissal of Smith's case. While a breach of fiduciary duty to Smith by Auxient was clear, the lower court dismissed because it held there was no remedy. The lower court held "Even if Smith was harmed by his reliance on Auxient's pre-authorization, he still received the proper amount due under the plan." 665 F. Supp. 2d 989, 994 (E.D. Wis. 2009). Unlike the plaintiff in Kenseth, Smith did not allege that money was wrongfully in the administrator's possession that belonged to Smith, so the lower court saw no available remedy. Also, Smith conceded that the plan did not cover the surgery he had. Why Smith did not pursue these theories is unknown to this author. Nevertheless, it was error for the lower court to dismiss the complaint.

Smith did request declaratory and injunctive relief under ERISA § 502(a)(3). Smith requested Auxient be enjoined from invoking coverage exclusions after pre-authorization where Auxient did not note the coverage exclusions and did not obey regulations on timing of determinations on pre-service claims for benefits. See, e.g., 29 C.F.R. 2560.503-1(f)(2)(iii)(A) (requiring pre-service claim determinations to be made in not more than 15 days). Even if Smith could not obtain payment for the surgery in this case, the relief would benefit all other participants, and Smith the next time he seeks pre-authorization for a procedure. The Seventh Circuit therefore took the common sense approach that even if a breach of fiduciary duty cannot compensate a claimant for the cost of the procedure, the health insurer should not be permitted to eternally breach its fiduciary duty to participants. The lower court would have apparently permitted Auxient to lie to each and every participant over, and over, and over again.

If you have been billed for any health care services that your insurer or plan administrator pre-approved or pre-authorized, contact an ERISA lawyer.

Employees and executives in Chicago will in the near future experience automatic enrollment into health insurance as part of their employee benefits. The Department of Labor ("DOL") announced it will host a public forum to discuss implementation of the requirement of large employers to automatically enroll employees into one of the employers health benefit plans. EBSA News Release 3/14/2011. The forum will take place on April 8, 2011 from 1:00 to 5:00 p.m.

Pursuant to § 1511 of the Patient Protection and Affordable Care Act of 2010 ("PPACA"), large employers (defined as those having more than 200 full-time employees) must automatically enroll employees into one of the employer's health benefit plans. This dovetails with PPACA's mandate on individuals purchasing health insurance. PPACA § 1501. Until DOL issues final regulations on the matter, employers will not have to comply with § 1511, but DOL has indicated it intends to issue final regulations by 2014, the same year the individual mandate becomes effective. EBSA Q&A3, Dec. 22, 2010.

This aspect of Health Care Reform has both potentially great benefits and drawbacks for employees. If you happened to have forgotten about open enrollment, or if you were overwhelmed with documents when you were hired such that you mistakenly did not elect health coverage, this might be great because you will not have to lose a year of health care coverage. However, if your employer provides various levels of coverage, such as an HMO and a PPO, the employer will choose what the default plan in which employees are automatically enrolled, subject to an opt-out. This may not be the level of coverage you wanted, so it still behooves you to make your own election. Also, perhaps upon being hired you were already covered by a spouse's health plan, you and upon automatic enrollment you may become covered under two plans. Suffice it to say, you will still be best off laboring over all those open enrollment forms and new hire packets.

Many, if not all, long-term disability ("LTD") insurance policies, including those covered by ERISA, contain a clause that states some variation of "if Employee's disability, as determined by Insurer, is caused at least in part by a mental, psychoneurotic or personality disorder, benefits are not payable for Employee's disability for more than 24 months." Often times, a disability that qualifies an employee for benefits may have many symptoms and diagnoses. What caused the disability becomes a vital question. The insurer undoubtedly wishes to peg the cause of the disability to a mental, psychoneurotic or personality disorder in order to cap its liability to 24 months of benefits. So an equally paramount question is whether an employee on disability leave must wait to stop receiving benefits after 24 months to challenge the insurer's decision.

The answer is found buried in a regulation on claims procedures defining "adverse benefit determination." Under ERISA, every plan must establish a reasonable claims procedure. ERISA § 503(2). Pursuant to Department of Labor regulations, the claims procedure is applicable to actual claims for benefits, rather than informal requests of whether coverage applies. 29 C.F.R. § 2560.503-1(e). In order to appeal the administrator's decision, there must have therefore been an actual "adverse benefit determination." Id. § 2560.503-1(m)(4). So in the example described above, where an employee has already filed a claim and been awarded benefits, but thinks the benefits will lapse under the 24-month limitation on mental health disabilities, if there has been an adverse benefit determination the employee should be able to appeal.

Often times, the insurer will outright state in its initial benefit award letter, or in subsequent correspondence, that the benefits will be terminated after 24 months. In such cases, an employee may be able to immediately appeal the determination without awaiting a termination of the benefit payments. Such was the case in Madonado v. Prudential Insurance Co. of America, 2011 U.S. Dist. LEXIS 21712, at *9 (D. Colo. Mar. 2, 2011). Because the insurer stated in its initial benefit award letter that the benefits would be subject to the 24-month limitation, at that time there had been an adverse benefit determination.

If you are receiving disability benefits through disability insurance and believe the insurer may try to terminate your benefits because of a 24-month limitation on benefits payable for disabilities caused by a mental, psychoneurotic or personality disorder, consult an attorney versed in ERISA.

Many businesses over the past several years have been struggling, especially small businesses. For various reasons, including impending bankruptcy, garnishment of a bank account by a creditor, or needing to catch up on some other bills, sometimes an employer do not make the monthly health insurance premium payment, even though it withheld money from employees' wages for those premiums. The employers often think that if the business survives, it will "catch up" on its delinquent insurance bill. But if the business fails, the employees merely lost premium payments, and they will become priority creditors in a bankruptcy to recoup the withholding not used to pay for insurance. But the real problem arises when one of the employees visited a doctor and had tests performed, and received a bill for that $3500 MRI, or worse $25,000 in doctor and hospital bills for a surgery, all because the insurer revoked coverage for the employer's failure to make the insurance premium payments.

In the above situation, unless the employer is a state or local government or a church, the employer most likely created a welfare benefit plan covered by Employee Retirement Income Security Act ("ERISA") § 3(1), and the funds withheld from your wages to go towards the insurance premiums become plan assets "as of the earliest date on which such contributions . . . can reasonably be segregated from the employer's general assets." 29 C.F.R. § 2510.3-102(a)(1). The regulation provides a safe harbor for plans with fewer than 100 participants as of the start of the year, which would include the typical small employer. In that case, if the employer pays the insurance company within 7 days of withholding the money from employees' the funds will not be "plan assets" while in the employer's possession and until paid to the insurer. Id. § 2510.3-102(b).

If such withholding for insurance premiums become "plan assets", then mishandling of those assets by a fiduciary by not using the assets for the exclusive benefit of employees could subject such fiduciary to liability for breach of fiduciary duty under ERISA § 409. An unsophisticated employer may believe this would only be a debt of the corporation, but this liability extends to any person who exercised any authority or control over the plan assets. ERISA § 3(21)(A). This means whomever had the authority or control to not pay the insurance premiums with the employees' withholding will most likely be a fiduciary subject to liability. And that liability could include all bills issued to employees that would have been paid by the insurer had the employer not mismanaged the plan assets and instead paid the insurance premiums. See In re Louis Jones Enters., Inc., 442 B.R. 126 (Bankr. N.D. Ill. 2010); In re Charter Graphic Servs., 230 B.R. 759 (Bankr. N.D. Tex. 1998). Similar facts could arise with disability insurance or life insurance. If you have not received benefits that should have been paid for with your withholding for insurance, consult an experienced ERISA lawyer.

Employees in Chicago currently suffering from a condition commonly find themselves involved in an auto accident, or some other accident where a third party caused them injuries. Often, these prior conditions may be aggravated by the accident. If you have health insurance coverage, and you've already been receiving treatment for the condition, the waters become murky in determining what portion of the care related to your prior condition before the accident, and what portion is attributable to the accident.

Health Care plans covered by the Employee Retirement Income Security Act ("ERISA") often file a lien for reimbursement and subrogation in the injury lawsuit, or send a letter to the plaintiff's attorney. After the Supreme Court decided Sereboff v. Mid Atlantic Medical Services, Inc., 547 U.S. 356, ERISA plans have been more aggressive in pursuing such purported liens, resorting to suing the injured parties and even seeking attorneys fees for doing so. The Sereboff Court, however, left more questions unanswered than it answered. Thus, rights of plans to reimbursement or subrogation is not uniform and depends on numerous factors, including the language of the plan document, the manner in which the plan or policy was procured, and the state in which the policy originated. Sereboff expressly passed on answering the question of whether equitable relief under ERISA § 502(a)(3) for reimbursement of all funds expended by a plan where the injured party recovers less than the full claimed amount from the third party tortfeasor is "appropriate." It also did not answer what happens when part of the cost of health care may be attributable to the prior condition.

Undoubtedly, a plaintiff's injury lawyer will initially allege all possible damages, including all health care costs incurred following the accident. However, only as the case gets closer to settlement are concessions made that some portion of the medical expenses relates to the prior condition for which the plaintiff already was receiving treatment. But plaintiffs often settle these cases for less than the amount originally demanded, and then find out the insurer wants reimbursement based on the entire amount of medical expenses originally claimed as damages. These exact circumstances presented themselves recently in Rotech Healthcare Inc. v. Huff, 2011 U.S. Dist. LEXIS 23100 (C.D. Ill. Mar. 8, 2011). Luckily there, Ms. Huff was armed with deposition testimony of her treating physicians which convinced the Court that a large amount of the medical expenses incurred after the accident actually related to a prior condition for which she had previously been receiving treatment.

If you have suffered any kind of injury and had a prior condition aggravated, make sure your lawyer involves competent ERISA counsel before filing a lawsuit on your behalf. Not seeking advice from an ERISA lawyer could be the difference between a plaintiff being compensated for her injuries and turning over all proceeds of a settlement to an insurer.

Employees and executives in Chicago and the Joliet area who suffer from certain diseases and syndromes such as Fibromyalgia or Chronic Fatigue Syndrome face an uphill battle if they need to make a claim for long-term disability ("LTD") benefits. Fibromyalgia and Chronic Fatigue Syndrome are conditions that are characterized by, among other things, a lack of an objective test that can confirm or dispel a diagnosis with a mere paper review of the test results. However, this is precisely what administrators of long-term disability plans are looking for. The administrator will show your written test results to a physician who will never meet you face-to-face, and will inevitably opine that based on the test results, you are not disabled. Couple this opinion with the plan terms investing discretion in the plan administrator or construe and interpret the terms of the plan, and you have a near certain denial of benefits. LTD claimants need not lose hope, though.

Recently, an employee of American Honda Motor Company was similarly denied LTD benefits following a diagnosis of Chronic Fatigue Syndrome. See Salomaa v. Honda Long Term Disability Plan, 2011 U.S. App. LEXIS 4386 (9th Cir. Mar. 7, 2011). Solomaa became ill with what he thought was merley a stomach flu. He took several days off of work and returned to work, but was never the same. Where he once had plenty of energy, he found himself constantly exhausted. In the beginning, Salomaa went to work, but was lethargic and moved slowly, and then spent nearly all his time off of work in bed. Salomaa even lost 14% of body weight because he was usually too tired to get out of bed for dinner.

As his condition progressed, Salomaa could not even go to work. His physicians noted he lacked the energy to even climb up onto the seat in the examination room. While Mr. Salomaa had some good days where he would be able to do up to 30-60 minutes of sedentary work, that would so exhaust him he would need to spend the next several days in bed. On a typical day, even several minutes a day of work was unbearable. Solomaa also suffered from insomnia and memory loss. Salomaa's doctors labored over test result after test result, ruling out alternatives to Chronic Fatigue Syndrome. He had comprehensive blood work, MRIs, and an echocardiogram performed. Doctors attempted placing Salomaa on various medications, noting the ineffectiveness of each.

Salomaa applied for and was denied LTD benefits. The administrator cited the lack of any positive objective physical findings. It also cited that Salomaa's blood work came back normal. The administrator also ignored the previous illness and weight loss, and claimed a changed diagnosis from depression to Chronic Fatigue Syndrome meant Salomaa's depression improved.

Continue reading "Suffering from a Condition which Objective Tests Do Not Show Does Not Disqualify You for Long-Term Disability Benefits" »

Participants and beneficiaries of retirement plans in Chicago and the rest of Illinois will soon have opportunity to review the testimony presented to the Department of Labor ("DOL") regarding the DOL's proposed new definition of a plan "fiduciary" and submit comments on that testimony. The DOL announced the extension on March 8, 2011 in a press release. Once the DOL uploads the testimony to the site of its agency, the Employee Benefit Security Administration ("EBSA"), the testimony will be available for review for 15 days.

Prior to holding the hearings on March 1-2, 2011, the DOL received an abnormally high number of public comments regarding its proposed regulation, 199 to be exact. It further received 39 written requests to testify at the hearing.

Times have changed. The DOL's proposed new definition of fiduciary would modernize the 35 year-old definition that may have been appropriate in the 1970s, but has proven to be outdated today. The retirement plan industry has experienced a mass exodus from traditional defined benefit pension plans and gravitated towards defined contribution plans, such as a § 401(k) plan (where the account balance defines the amount of benefits the participant will receive). In addition, there are far more outsourced service providers to plans today than there were 35 years ago. These service providers' fees are often paid from the account balances of the very participants to whom the providers wish to owe no fiduciary duty.

In the 1970s landscape of defined benefit pension plans, the service providers' loyalty understandably may have been to the plan sponsors and employers, because a misfeasance by the service provider likely resulted in the employer paying more to fund the promised benefits. But today, the participants often directly pay for these services, thus lowering the participants' and beneficiaries' benefits. Should there not then be a higher duty of cared owed by service providers to participants and beneficiaries today than there was 35 years ago?

For more information regarding the proposed new definition, see DOL Issues Agenda for Hearing on Proposed Regulation Changing the Definition of "Fiduciary".

Today's edition of the Chicago Tribune contained an article describing Senate President John Cullerton's suggestion of placing an income tax on retirement income, both from plans covered by the Employee Retirement Income Security Act ("ERISA"), and exempt sources of retirement income (e.g., state pension plans, Social Security, etc.). Placing a greater tax burden on seniors will be a hard sale for legislators. But intelligent debate on the issue cannot even take place unless we educate constituents on the current tax treatment of retirement income, from the day the money is deferred or accrued, until distributed.

First, under Federal income tax laws, any contributions to a tax qualified retirement plan (e.g., 401(k), pension, profit sharing) are excludable from your adjusted gross income, whether you elected to defer the money or your employer makes a contribution to the plan. In addition, voluntary contributions you make to a traditional IRA (as opposed to a Roth IRA) are excluded from your adjusted gross income. These items are not taxed in the year deferred, contributed, or accrued.

Next, the Federal government also allows all money held in a qualified plan or IRA to grow tax-free, meaning there is no income tax paid on the yearly earnings of the account or plan. Finally, the money is subject to income tax upon distribution. There is an additional tax incentive to employers that sponsor a tax qualified plan in that the employer gets to immediately claim the deduction for the compensation deferred or contribution the employer made.

With few adjustments, the Illinois measure of taxable income is largely based on Federal adjusted gross income. So the same amounts that are excluded from Federal adjusted gross income, and thus not taxed, are also excluded from Illinois adjusted gross income and not taxed.

Now fast forward to retirement. Recognizing that some would wish to keep money in a tax-shelter as long as possible, Congress imposes rules on minimum distribution, meaning you must take out a certain amount each year and pay tax on that distribution. I.R.C. § 401(a)(9). Failure to take such a minimum distribution subjects you to a hefty excise tax of an additional 50% of the distribution you were required to receive, but did not. I.R.C. § 4974. After all, Congress is willing to defer income tax receipts, but did not want to forever forego them. While the Federal government does tax distributions from tax qualified retirement plans and accounts, the State of Illinois does not. Essentially, Illinois makes all money saved for retirement (by you or by your employer on your behalf) through a tax qualified vehicle completely income tax-free.

Continue reading "Illinois Legislators Mull a Tax on Retirement Income" »

Employees, Executives and even partners of businesses in Chicago and the Midwest may be surprised to find out what exactly they need to do in order to qualify for disability benefits from an employer provided long-term disability plan even in seemingly clear cases of disability. There often are requirements of how quickly you must make a claim for benefits and how long thereafter you have to file a lawsuit regarding any denial of benefits. These time limitations and all other claims procedures are always outlined in the plan documents. However, you may have never looked at the plan documents. Admittedly, even this author has once been covered by an ERISA disability plan and not read the plan documents!

If you become disabled, however, the terms of that plan and the claims procedure will become immensely important. Recently, a disabled worker in Louisiana learned this lesson the hard way. Connie White qualified for short-term disability. Upon exhaustion of the short-term disability benefits, she applied for long-term disability benefits submitting records from her physician indicating she could not work. Her claim was denied, and in the denial letter the administrator, Metropolitan Life Insurance Company, cited a lack of required medical evidence. Ms. White thereafter submitted the additional medical evidence. Met Life, however, upheld its earlier denial and advised Ms. White's lawyer that she had not submitted proof of filing a claim for Social Security disability benefits--a requirement under the plan.

Ms. White applied for Social Security disability benefits, was initially denied, but successfully appealed that denial, being awarded over $56,000 in past due benefits by the Social Security Administration. Thereafter, she submitted evidence of the award of Social Security disability benefits to the administrator, but to no avail. When Ms. White sued Met Life, Met Life moved to dismiss the complaint and for summary judgment. The Court dismissed the claim because the plan required that no legal action could be filed "more than three years after the proof of Disability must be filed." White v. Metropolitan Life Insurance Co., No. 10-30707, 2011 U.S. App. LEXIS 3682, at *3 (5th Cir. Feb. 25, 2011). Ms. White's delay in this case, reasons for which are unknown and not readily apparent from the record in that case, very likely cost her the benefits. Whatever Ms. White's reasons were for delay, one thing is clear: if you are disabled, immediately speak to a lawyer knowledgeable about ERISA and familiar with plan documents.

Ever since the Supreme Court issued its opinion in Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989), nearly every employee benefit plan and insurance policy covered by the Employee Retirement Income Security Act ("ERISA") includes a clause granting the plan administrator "discretion" to interpret the terms of the plan. Not surprisingly, many of these plans were written vaguely, so that the administrator's interpretation would upheld unless it was not reasonable. See Metropolitan Life Ins. Co. v. Glenn, 554 U.S. 105, 105 (2008).

Following apparent abuses by the insurance industry with respect to health insurance plans, disability plans and life insurance plans, the National Association of Insurance Commissioners proposed legislation in many states that would ban such discretionary clauses from insurance policies, as such clauses have incented insurers to craft vague policies, and then "reasonably" interpret said policies in their own favor. Illinois enacted such a ban. 50 Ill. Admin. Code § 2001.3 (2005).

Whether or not Illinois' ban on such discretionary clauses is preempted by the Employee Retirement Income Security Act ("ERISA") was addressed recently in Chicago's federal court. Ball v. Standard Ins. Co., 2011 U.S. Dist. LEXIS 19146 (N.D. Ill. Feb. 23, 2011). Standard Insurance vehemently argued the clause was preempted by ERISA because it was designed to dictate a standard of review in ERISA cases. Id. at *9. Judge Keys, however, disagreed. Though ERISA has broad preemption of state laws, ERISA § 514(a), it saves from preemption laws that regulate insurance. ERISA § 514(b)(2)(A). A state law regulates insurance if (1) the state law is "specifically directed towards entities engaged in insurance" and (2) the law "substantially affect[s] the risk pooling arrangement between the insurer and insured." Kentucky Association of Health Plans, Inc. v. Miller, 538 U.S. 329, 341-42 (2003). Judge Keys held the Illinois ban on discretionary clauses met the test in Miller, and that a de novo standard of review applies.

Earlier in the case, Ms. Ball propounded broad discovery requests, but the court entered an order limiting discovery to the administrative record. Upon motion to reconsider that ruling, Judge Keys upheld the court's earlier ruling. This case made clear that even with an opportunity to encounter a de novo standard of review in the U.S. District Court, it is imperative that a lawyer representing a claimant during the administrative claims process knows how to create a record. If you have a claim for health, disability, or life insurance benefits, make sure to consult an attorney learned in ERISA.