Illinois ERISA Lawyer Blog

Employees and Retirees in Chicago that are participants in a pension plan should be concerned about a cost of living adjustment ("COLA") in their pension plans. A COLA is an annual adjustment to a pension benefit based upon a cost of living index. The question arises, however, when a participant takes a lump sum distribution, whether that lump sum will reflect future COLAs or not. A class action case on this topic recently settled, and some parties challenged the settlement. Williams v. Rohm & Haas Pension Plan, No. 10-1978 (7th Cir. Sept. 2, 2011).

The case began when Cory Williams left Rohm & Haas, and elected to take a lump sum distribution of his pension benefit under the terms of the plan. He later came to believe his lump sum distribution should have included the present value of the future COLAs that he would have received if he elected an annuity. The district court granted summary judgment in his, and the class's, favor. It, and the appellate court, held that a COLA is an accrued benefit within the meaning of § 2(23)(A) of the Employee Retirement Income Security Act ("ERISA"), and thus ERISA § 504(c)(3), which provides any lump sum distribution must be the actuarial equivalent of any benefit payable as an annuity. In fact, tax regulations provide that when a plan an early retirement annuity is to be the actuarial equivalent of an early retirement annuity, the lump sum must include a COLA. Treas. Reg. § 1.411(a)-11(a)(2).

The parties contested the damages amounts, and the Plan argued the tax regulation was not applicable because under other precedent, other similar tax regulations have been held to be merely a requirement for preferential tax treatment, but not a requirement to comply with ERISA. See McCarter v. Ret. Plan for the Dist. Managers of Am. Family Ins. Grp., 540 F.3d 649, 651 (7th Cir. 2008). Before the district court could address this argument on damages, the parties settled the claims.

If you have questions regarding the cost of living adjustment in your pension plan, speak to a pension lawyer versed in ERISA today.

Employees and Retirees in Chicago alike frequently wonder what happens when a plan administrator misrepresents the pension benefits that employee or retiree would receive, such as what the annuity payment amount would be. There have been plenty of cases involving a misrepresentation by the plan sponsor or employer (e.g., Enron). But no case yet arising in Chicago has yet to extend the estoppel principle against a retirement plan itself. A recent case appeared to be the example where the Seventh Circuit Court of Appeals would answer the question: can an estoppel claim proceed against the plan. See Pearson v. Voith Paper Rolls, Inc., No. 08 C 114 (7th Cir. Aug. 25, 2011). However, the court found a way to dispose of the case without answering the question that needed answering.

In Pearson, Kenneth Pearson was nearing retirement from Voith Paper Rolls. Prior to his retirement, Pearson met with a Human Resources representative regarding retirement, and Pearson asked the representative to calculate his retirement benefits under the plan. The plan provided that a retiree could elect between either a lump sum distribution, or one of several different variations of annuities. Pearson had met the age and service for early retirement, but not for full retirement benefits. When the Human Resources representative calculated Pearson's options, he entered the early retirement information into the lump sum distribution calculation, but not into the annuity calculations, thereby representing to Pearson artificially inflated annuity payments. Pearson elected one of the annuities, and after he retired, was informed his annuity payment would decrease.

Pearson raised claims of estoppel against the Plan. Faced with having to decide for the first time whether a claim of estoppel can proceed against a plan by a participant in the Seventh Circuit, the Court of Appeals declined to answer the question. The court held that even if it recognized such a claim against the plan, Pearson did not offer evidence of all the required elements, namely that the Plan intentionally misrepresented the benefit amount, or that Pearson relied on the misrepresentation to his detriment. The court thus affirmed the district court's grant of summary judgment to the Plan.

If you have questions about a misrepresentation made to you about your pension benefits, speak with an experienced ERISA lawyer today.

Employees and executives in Chicago frequently want to know what benefits their employer-sponsored pension or retirement plan has to provide. Generally, both ERISA and the Internal Revenue Code require qualified plans provide a minimum level of participation, vesting, accrual of benefits, non-discrimination, and responsibilities on plan fiduciaries. But ERISA and the Code also provide that once a plan has provided a benefit pursuant to a retirement plan, it may not subsequently take away a protected benefit. This is called the anti-cutback rule. ERISA § 204(g). Employees of a Chicago-based employer recently challenged a plan amendment, arguing it violated the anti-cutback rule. See Carter v. Pension Plan of A. Finkl & Sons Co. for Eligible Office Employees, No. 10-3287, 2011 U.S. App. LEXIS 16824 (7th Cir. Aug. 15, 2011).

In Carter, the employer decided to terminate the pension plan (something an employer has a right to do, provided it meets certain requirements). After notifying all the participants of the proposed plan termination, and initiating the process with the Pension Benefit Guaranty Corporation, the employer amended the plan to provide that a participant who has not yet begun receiving distributions from the plan when the plan would distribute benefits on account of its termination, the participant could elect to start receiving an annuity, even if he still worked for the employer. Subsequently, due to the costs associated with plan termination, the employer abandoned the proposed termination, and enacted another amendment effectively voiding the first amendment allowing the annuity while working.

The participants claimed they had a protected right to receive in-service annuity distributions that could not be taken away pursuant to ERISA's anti-cutback rule. Both the District Court and Court of Appeals rejected the plaintiffs' argument, because the right to receive an in-service annuity under the first amendment was conditioned on the plan terminating. Because the plan did not terminate, the first amendment never created a protected benefit.

If you are a participant in an employer-sponsored pension or retirement plan and would like to know if your employer has eliminated a protected benefit, contact an experienced ERISA lawyer.

Employees and Executives in Chicago that participate in an ERISA employee benefit plan often wonder whether once an employer gives a benefit, the employer can later take it away. Recently, CUNA Mutual did just that, and in an opinion with which this author disagrees (in both result and reasoning), the Court of Appeals for the Seventh Circuit ruled 2-1 that CUNA's action was not improper. Sullivan v. CUNA Mut. Ins. Society, No. 10-1558, 2011 U.S. App. LEXIS 16413 (7th Cir. Aug. 10, 2011)

Years ago, CUNA adopted a policy in order to incentivize employees not to use their sick days, whereby unused sick days could be saved for retirement and a monetary value allocated to those sick days could be used to credit premiums the retirees would have to pay for post-retirement health insurance coverage. In 2008, CUNA had accumulated a recognized liability for all these unused sick days on its books totaling over $120 million. With one swift stroke of a pen, CUNA eliminated the liability, and recorded a gain for the same amount on its books, telling all its retirees they could no longer use the sick day balance to pay for post-retirement health care.

The retirees sued, alleging CUNA engaged in a prohibited transaction by diverting plan assets to itself. Writing for the split-panel majority, Judge Easterbrook reasoned that (1) unlike pension plans, welfare benefit plans do not need to be funded under ERISA § 301, and (2) welfare plan benefits do not vest. Judge Easterbook also reasoned that the sick-leave balances were not plan assets, because they were mere bookkeeping liabilities.

The Court, however, seemed to have overlooked clear statutory and regulatory language that counters this reasoning. True, funding rules only apply to pension plans, not welfare benefit plans. But ERISA clearly requires that all plan assets, whether pension plan or welfare plan, be held in trust. ERISA §§ 401, 403. Next, ERISA provides little for a definition of plan assets, and directs the Department of Labor to define the term in regulations. ERISA § 3(42). The regulations provide that any amount that an employee pays to an employer towards an employee benefit plan becomes a plan asset shortly after the funds can reasonably be segregated from the employer's general assets. 29 C.F.R. § 2510.3-102(a)(1). It would appear that when the workers elected not to use their sick days, they paid these sick days (which under the plan had a corresponding monetary value) to the plan, and upon the end of the calendar year, the employer had an obligation to place the value of the sick days in a trust pursuant to ERISA § 403.

Continue reading "CUNA's Elimination of Accrued Account Balance for Post-Retirement Health Care Upheld by Seventh Circuit" »

Employees and executives in Chicago frequently want to know when a participant in an ERISA covered plan can recover attorney fees. ERISA does provide for fee shifting in litigation. ERISA § 502(g). However, these fees are only recoverable once they are incurred in litigation upon achieving "some degree of success on the merits." Hardt v. Reliance Standard Life Ins. Co., 130 S. Ct. 2149, 2152 (2010). This case changed the standard, where previously a claimant had to be a prevailing party. This gave long term disability insurers and plan administrators every incentive to withhold benefits, wait until a complaint was filed, and then just pay the claim--preventing the claimant from becoming a prevailing party. This precise strategy was demonstrated recently in Pakovich v. Verizon LTD Plan, No. 10-1889, Slip Op. (7th Cir. July 22, 2011).

In Pakovich, the claimant achieved a remand in court back to the administrator to make a determination on her benefits claim. Rather than make the determination on remand, the plan just did nothing. After several months, Pakovich filed another complaint in court seeking benefits due, arguing he claim was "deemed denied" because the plan did not render a decision on her claim within the time allowed by ERISA. Soon after filing the complaint, the plan paid all benefits due. The plan then moved to dismiss the case, arguing it was moot. The district court granted the motion, and denied any attorneys fees to Pakovich because she was not a prevailing party. Both parties appealed.

The Seventh Circuit Court of Appeals held the claim for benefits was moot, because the plan paid Pakovich all the benefits to which she was entitled. But the court also held the plan had to pay Pakovich's attorney fees. A contrary holding would permit "opportunistic plans [to] routinely delay deciding whether to pay benefit claims until participants and beneficiaries file suit, effectively requiring them to incur legal costs unrecoverable under ERISA § 502(g) in order to receive benefits to which they are legally entitled . . . . Such a barrier would contradict one of ERISA's primary policies, to protect 'the interests of participants in employee benefit plans and their beneficiaries . . . ." Id. at 9.

If you are a participant in an employer-sponsored employee benefit plan and the administrator or insurer is not responding to your claim for benefits, contact an experienced ERISA lawyer.

A recent ruling from the Seventh Circuit Court of Appeals in Chicago protected employees with conditions such as fibromyalgia or chronic fatigue syndrome who have an insurer deny benefits based on an exclusion that was not properly disclosed to the employee. Weitzenkamp v. UNUM Life Ins. Co., No. 10-3898, 2011 U.S. App. LEXIS 14180 (7th Cir. July 11, 2011). In this case, Weitzenkamp was diagnosed with fibromyalgia, chronic pain, anxiety, and depression. UNUM awarded her long term disability benefits. After two years of paying the benefits, however, UNUM cut off her payments, citing a clause in the policy that limits benefits paid because of a disability dependent on "self-reported symptoms." The problem was that UNUM also prepared a summary plan description of the plan, and referenced a two-year limitation on benefits in three separate locations (all referencing mental health), but the SPD never mentioned the self-reported symptoms limitation.

The Seventh Circuit Court of Appeals held that the failure to include this important limitation in the SPD was a violation of the part of ERISA that requires the SPD to disclose the material terms of the plan. ERISA § 102. Because UNUM did not disclose this critical limitation in the SPD it distributed to participants, the court held UNUM could not then rely on the limitation in order to terminate benefits. The court did grant a rehearing on this case, and we will track its progress.

If you are a participant in an employee benefit plan and the administrator or insurer denied or terminated your benefits based on a limitation or exclusion not previously disclosed to you, call an ERISA lawyer.

Employees in Chicago and the Midwest have mostly heard about insurance companies, especially ERISA long-term disability insurers, employing video surveillance when evaluating claims. Insurers have created this mass misconception that disability applicants get caught in the act of performing activities wildly inconsistent with the claimant's asserted limitations. But the truth is the insurers use the surveillance in many cases, and these so called "inconsistencies" are far more subtle than the insurers would have many believe.

In a recent case, Life Insurance Company of North America ("LINA") terminated the long-term disability benefits of a claimant because it captured her on video surveillance removing groceries from her trunk in September 2007, and during January 2008 walking with a cane and test-driving a vehicle. Hunter v. Life Ins. Co. of N. Am., No. 10-1244, 2011 U.S. App. LEXIS 13598, at *4-6 (6th Cir. Jun29, 2011). Hunter had been diagnosed with degenerative joint disease, degenerative arthritis, rheumatoid arthritis, osteoarthritis, scapular pain, fibromyalgia, spondylolithesis, and spinal stenosis. She had been a Revenue Cycle Manager at a hospital. Her long-term disability insurance policy defined "disabled" as "unable to perform all the material duties of . . . her regular occupation . . . ." Because LINA classified Hunter's job as sedentary, and viewed her doing things that it claimed were consistent with being able to do sedentary work, LINA terminated Hunter's benefits.

A district court upheld LINA's decision, but the Court of Appeals for the Sixth Circuit overruled the district court, and ordered LINA to pay the benefits. LINA never considered the description of Hunter's "regular occupation," and whether she could perform all the material duties of her regular occupation. Instead, it merely claimed she could do sedentary work. The Court of Appeals also found several other troubling indications of a conflict of interest in the record, and held that LINA had acted arbitrarily and capriciously in terminating Hunter's benefits.

If you have questions about insurers and video surveillance in connection with an application for long-term disability benefits, speak with an experienced ERISA lawyer today.

Employees in Chicago and the Midwest who are participants in plans maintained by associations finally have clarity about the required administrative claims process when seeking long-term disability benefits. Often association boards meet on set schedules, such as monthly or quarterly. The boards may have used these meetings in the past in order to make determinations on claims for benefits from plans established and maintained by the association. But a recent decision from the United States Court of Appeals for the Ninth Circuit may have changed that forever.

In Barboza v. California Association of Professional Firefighters, No. 09-16818, 2011 U.S. App. LEXIS 13341 (9th Cir. June 30, 2011), Barboza was a participant in a long-term disability plan maintained by the California Association of Professional Firefighters. Barboza filed his claim for disability benefits, but the association's board did not render a decision on the claim until its next scheduled quarterly meeting. In the meantime, Barboza filed a lawsuit in federal court, claiming he did not have to exhaust any administrative claims procedure because the plan did not make a determination on his benefit claim within the time prescribed in the regulations pursuant to 29 C.F.R. § 2560.503-1(l).

Plan administrators generally must make determinations on benefit claims within 60 days. Id. § 2560.503-1(i)(1)(i). Certain plans that have a committee or board of trustees can make general benefit determinations at regularly scheduled quarterly meetings. Id. § 2560.503-1(i)(1)(ii). Disability claims, however, must be resolved within 45 days instead of 60. Id. § 2560.503-1(i)(3)(i). But multiemployer disability plans may still make the determinations at quarterly meetings. Id. § 2560.503-1(i)(3)(ii). This seems straight-forward, but each rule is subject to exceptions, citing other provisions of the regulation. The plan in this case planned to avail itself of the quarterly meeting rule, but Barboza argued that rule is not available to the plan because it is not a multiemployer plan.

The Department of Labor submitted an amicus brief, arguing in favor of Barboza, and construed the regulation to preclude associations, even those with a committee or board of trustees, from making determinations on claims for disability benefits at quarterly meetings. The Court of Appeals agreed, and ruled that Barboza did not have to wait for the plan to make a determination on his claim for benefits, and could proceed to court after the plan failed to render a decision or request an extension within the 45-day period.

If you have a question about ERISA plan claims procedures, contact a knowledgeable ERISA lawyer.

Executives in Chicago and the Midwest, especially working for small to mid-size employers, often negotiate into their employment agreements some form of deferred compensation and/or severance compensation. Until the relationship between executive and employer sours, the parties only think about the tax considerations of executive compensation. But when there is a dispute between employer and executive, and the executive must take measures to enforce the agreement, the question becomes whether the compensation is covered by ERISA or not. Results are mixed, and always turn on a fact specific inquiry. Consequently, there are no hard and fast rules.

One such executive recently filed a complaint in state court and faced a motion to remove to Federal court under ERISA by his former employer. See Hoffner v. Bank of Choice Holding Co., No. 11-266 (D. Colo. June 21, 2011). In that case, the bank entered into an "Executive Salary Continuation Agreement" with Mr. Hoffner, whereby the bank would pay Hoffner $50,000 for ten years upon retirement and reaching age 65. But if Hoffner voluntarily terminated his employment prior to reaching age 65, he would receive the balance of an accrued liability account--an unfunded account maintained on the bank's books recording a liability to pay Hoffner's post-retirement compensation. But nothing in the record suggested how the bank accrued the liability, whether on a straight line method or otherwise. The agreement only provided that the bank would place "appropriate reserves" in the accrued liability account.

The court ultimately held the parties' deferred compensation agreement did not meet the definition of an ERISA-governed plan. The court applied the element test of the seminal case, Donovan v. Dillingham, 688 F.2d 1367 (11th Cir. 1982). The court held the intended benefits were not reasonably ascertainable, there was not a reasonably ascertainable class of beneficiaries, and there was not a sufficient ongoing administrative scheme (see Fort Halifax Packing Co. v. Coyne, 482 U.S. 1 (1987)). The court rejected the bank's argument that only the kind of benefits should be reasonably ascertainable, rather than the amount. Also, nothing suggested these benefits were provided to a class of beneficiaries--they were only provided to this one employee. Note, however, that other courts have held there could be a "class of one." Finally, without illuminating its rationale, the court held this agreement did not provide benefits "whose provision by nature requires an ongoing administrative program to meet the employer's obligation." Siemon v. AT&T Corp., 117 F.3d 1173, 1178 (10th Cir. 1997).

If you have questions about how to enforce provisions of your executive employment agreement or benefit plan, contact a skilled ERISA lawyer.

Employees in Chicago and the Midwest often call my office and inquire about the "conflict of interest" in ERISA long-term disability cases. Few cases will be determined based on whether there is a conflict of interest, as insurers have become more clever at creating an appearance of there being no conflict of interest. But the best way to understand how the conflict applies in cases is to witness it changing the outcome of a case.

In 2008, the United States Supreme Court held that where an ERISA plan administrator (such as an insurance company) both evaluates and makes benefit determinations, and is the source of funding to pay the benefits, the administrator is under a structural conflict of interest that should be weighed in judicial review of whether the administrator abused its discretion. Metropolitan Life v. Glenn, 554 U.S. 105 (2008). That does not necessarily mean the abuse of discretion standard will not apply; it just means a reviewing court will consider that conflict of interest. But something more than just the existence of the structural conflict usually needs to be shown. A claimant needs to show what else the insurance company did that shows that conflict of interest altered the administrator's benefit determination. A perfect example of this was in a recent (unpublished) decision from the United States Court of Appeals for the Ninth Circuit.

In Letvinuck v. Aetna Life Insurance Co., Aetna was the administrator of the Boeing Company Employee Health and Welfare Benefit Plan, and also funded the long-term disability benefits. No. 10-55018 (9th Cir. June 22, 2011). Aetna gave no weight to the fact that the claimant had been awarded disability benefits by the Social Security Administration, and did not try to address why the ERISA benefits were not payable despite Social Security benefits being awarded. Next, Aetna failed to tell the claimant what else she would need to show in order to be approved for the benefits. The court called this failure to "engage in meaningful dialogue" with the claimant and failure to let her know what evidence the insurer required. Because the claimant could point to these facts, the court then gave weight to the conflict of interest, viewed the denial with skepticism, and ordered the insurer to pay the benefits.

If you still have questions about how a conflict of interest can affect your right to disability benefits, speak with an ERISA lawyer.

Crain's Chicago Business published an article today about Chicago-based ComPsych Corp. executing several new agreements worth tens of millions of dollars with employers nationwide to provide employee assistance programs ("EAPs"). The article references how during difficult economic times, employees utilize these programs more. There is a greater onset of alcohol or substance dependence. Likewise, these EAPs have expanded to include counseling for managing marital problems, stress and obesity. I highly praise these programs for helping employees manage difficult problems. However, a central purpose of these programs is still to help employers by mitigating the extent to which life's obstacles decrease employee productivity. While many of life's obstacles are of the sort that can and should be properly addressed with an EAP, often executives, professionals and other employees overlook the employer's disability insurance plan. Sometimes, an employee may be a better candidate for disability leave than for assistance under an EAP.

Employees are usually aware they have a disability insurance plan, but rarely know exactly what that insurance plan covers, in what circumstances, how much it pays, for how long, and what (if anything) is excluded. Disability plans typically will provide most income replacement while you are "totally disabled" (as defined in the policy) or "partially disabled" (if your plan or policy provides for partial disability--some do, and some do not). Partial disability benefits will apply where you work a reduced schedule because of the condition and earn less money. Depending on the policy language, the plan may then supplement some or all of your reduced earnings. Disability plans often require that you be under the care of a physician in order to receive benefits. They also usually contain some sort of a 24-month limitation on benefits paid where disability is due to a mental condition or disorder (e.g., depression).

Not all claims for disability benefits are as a result of a physical disability. Executives and professionals often face high-stress in their jobs, which adds a unique vocational and/or medical element to a disability claim. When adding in life's other obstacles to your already high-stress, high-demand job, an EAP program may be the right way to go. But if you feel like you need more relief, or perhaps cannot work (albeit temporarily), then maybe disability is right for you. If you want to know about your options and rights under your employer's disability plan, call a lawyer knowledgeable in ERISA.

Executives, professionals and other employees in Chicago frequently call my office to ask what the statute of limitations is in an ERISA case (i.e., the measure of how long the potential claimant has to file a lawsuit under ERISA). Depending on the type of case, employees can end up more confused after asking that question than before. One recent case discussed when a claim accrues (i.e., the clock on the applicable statute of limitations begins ticking) in the context of a cash balance plan that paid lump sum distributions pursuant to an illegal plan term that set the actuarial value of the distribution.

In Thompson v. Retirement Plan of S.C. Johnson & Son, Inc., No. 10-3917 (7th Cir. June 22, 2011), the United States Court of Appeals for the Seventh Circuit held that the limitations period began running when participants received their lump sum distributions from the employer's cash balance plan. Under a cash balance plan, participants receive "interest credits", rather than investment returns on their account balances. The interest credit was 4%, or 75% of the plan's rate of return on its investments. If a participant stopped participating early, though, the participant could take a lump sum distribution at the present "actuarial equivalent" value of what the participant would have received at age 65. ERISA law dictated how to calculate the "actuarial equivalent" as a value discounted by the 30 year Treasury rate. The plan sought to use the same 30 year Treasury rate to calculate the future accruals, rather than the 4% or 75% of plan rate of return.

The plan defendants claimed the statute of limitations should have begun running when the plan sponsor disclosed this in Summary Plan Descriptions as early as 1998 or 1999. The court disagreed. An "ERISA claim accrues when a plaintiff knows or should know of conduct that interferes with the plaintiff's ERISA rights." Young v. Verizon Bell Atlantic Cash Balance Plan, 615 F.3d 808, 817 (7th Cir. 2010). But in this case, the SPDs did not sufficiently put the employees on notice of the illegal way the plan would calculate the future interest credits a participant would not earn by taking an early distribution. The court called the various SPDs "a collection of hints". Thompson, Slip Op. at 12. Therefore, the statute of limitations began running when the plaintiffs actually took their lump sum distributions.

The actual limitations period in that case was 6 years. ERISA only provides for a statute of limitations for breaches of fiduciary duty--6 years, or 3 years from when the plaintiff has knowledge of the claim (though exactly of what the plaintiff must have knowledge differs across jurisdictions). The limitations period for benefit claims under ERISA § 502(a)(1)(B) will be, in the absence of a shorter period written in the plan, the most analogous limitations period in state law, which is usually the statute of limitations for breach of a written contract. The Thompson case originated in Wisconsin, which provides for a 6-year statute of limitation.

If you feel your retirement plan has miscalculated your benefits, consult an experienced ERISA attorney right away.

Employees that participate in group health insurance or group disability insurance plans through their employers obtained another victory today. The United States Court of Appeals for the Ninth Circuit held that participants who bring claims under ERISA § 502(a)(1)(B) for benefits due under the terms of the employee benefit plan may sue the third party insurer--the insurance company from whom your employer buys insurance for the particular benefit plan--for those benefits.

In Cyr v. Reliance Standard Life Insurance Company, Ms. Cyr received disability benefits under the employer's disability insurance plan insured by Reliance Standard. She sued her employer, alleging it discriminated against her by paying her approximately half of what it paid male employees with similar qualifications. Cyr prevailed, and won a retroactive salary increase. She then demanded Reliance Standard increase her disability benefit payments to reflect the retroactive higher salary, but it refused. Cyr sued Reliance Standard for the increased benefits, but the insurance company was neither the plan, nor the plan administrator.

The District Court initially dismissed Cyr's case, following the precedent of previous Ninth Circuit caselaw which held only the employee benefit plan or the plan administrator could be proper defendants in an ERISA 502(a)(1)(B) lawsuit. The Court of Appeals initially affirmed that decision, but after rehearing the case en banc (i.e., before all the judges), it vacated its prior order and reversed the District Court's ruling.

The prior law limiting benefits claims to being brought against only the plan or the plan administrator is not supported by a reading of the statute. ERISA specifies who can bring a claim in § 502, but does not limit against whom a claim may be brought. Previously, the Supreme Court in Harris Trust and Savings Bank v. Salomon Smith Barney, Inc. held a participant may sue a non-fiduciary for "other appropriate equitable relief" under ERISA § 502(a)(3).

If you have any questions about who is supposed to pay your health insurance or disability insurance benefits, call an ERISA lawyer.

Employees in Chicago that are participants in any employee benefit plans should pay attention to the growing divide among Courts of Appeals over whether "satisfactory to us" is language in a plan sufficient to vest the plan administrator with discretion to interpret plan terms and make benefit determinations. When the administrator has such discretion, a court reviewing the administrator's decision will do so under an abuse of discretion standard--whether the decision was reasonable, not whether it was right.

The United States Court of Appeals for the Third Circuit joined the ranks of courts in holding such language requiring a participant to provide proof of a loss "satisfactory to us" does not confer discretion on the administrator of the plan. Viera v. Life Insurance Company of North America, No. 10-22810, Slip Op. at 19 (3d Cir. June 10, 2011). The Third Circuit joined the ranks of the Second, Seventh, and Ninth Circuits in holding that this sort of language does not clearly communicate to a participant that the plan administrator has discretion in administering the plan.

The Court of Appeals for the Seventh Circuit--located in Chicago--held this sort of language cannot vest the administrator with discretion back in 2005. Diaz v. Prudential Life Insurance Company of America, 424 F.3d 635, 637 (7th Cir. 2005). However, employees cannot take these holdings for granted. When there is a divide in courts of appeals such as the one present here, it is more likely the Supreme Court will allow an appeal in order to resolve the conflict.

If you have any questions about how a standard of review or a discretionary clause could impact your claim for benefits, consult a lawyer knowledgeable in ERISA.

Employees of privately held companies in Chicago and the Midwest have tremendous opportunities and risks ahead, as the baby-boomers who own those companies get set to retire. Generally, an owners of a privately held business has two choices when it comes time to retire: pass the business on to a family member, or sell it. Passing the business on to a family members is often not feasible. Many of these baby-boomers built the sort of business that required a lot of elbow grease. Meanwhile, they sent their children to the best schools and encouraged them to pursue other sorts of careers: accounting, finance, medicine, law, etc. Therefore, the boomers will look to sell those businesses. But as there likely will be more boomers retiring in the next decade than entrepreneurs looking to buy the businesses, selling the business to the employees via an Employee Share Ownership Plan (ESOP) will likely become more commonplace. If you are an employee in such a company, that sounds great so far, right?

The answer depends. ESOPs usually get billed as tokens of generosity: a means for a benevolent owner to pass the legacy on to employees. But often the true purpose is one of corporate finance: a means for the owner to liquidate a holding in the company. Danger lurks in ESOPs where the outgoing owner sets up the ESOP and also serves as a trustee of the plan at the time the ESOP will decide what price to pay for the stock to that very same owner. Not surprisingly, many such business owners have been caught doing just that before.

The Department of Labor just obtained several consent judgments against ESOP trustees in a case where the DOL alleged the trustees paid over $60 million for company stock only worth about $18 million. See Solis v. Mattingly, No. 2:09-cv-00207-WOB (E.D. Ky).

This particular ESOP affected over 5,000 employee participants, causing them losses, but similar transactions will become more likely on a smaller scale, and they have been alleged in larger scales as well (e.g., the lawsuit against the famed real estate mogul turned Chicago Tribune owner, Sam Zell). For instance, the business with 20 employees, 50 employees, maybe even 100 employees could easily become the next plan sponsor of an ESOP that pays inflated prices for company stock. If you are on of the participants in a company that recently set up an ESOP, you should ask several questions. Are the individuals who are selling the stock also running the ESOP? Who performed the valuation of the company stock? How did the valuator arrive at that number? Privately held companies are more difficult to value than publicly held companies, because there are no shares traded on securities exchanges.

Because of the potential for such abuse, the IRS has even issued guidance recently with respect to S Corporations sponsoring ESOPs. If you are a participant in an ESOP, and you think the plan may have paid too much for employer stock, speak to an ERISA lawyer today.