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The Second Circuit Considers Attorney’s Fee Award under ERISA in Settlement Context

In Hardt v Reliance Standard Life Ins. Co., 130 S. Ct. 2149 (2010) , the United States Supreme Court rejected the “prevailing party” standard for awarding attorney’s fees under ERISA.  Instead, a party moving for an attorney’s fee award must demonstrate “some degree of success on the merits.”   But what exactly does this standard mean?  Although not required, a favorable court judgment will qualify while a “trivial success” or a  “purely procedural victory” will not pass muster.  But how will these terms be interpreted and how will the standard be applied to the myriad of potential litigation outcomes which fall somewhere in the gray area in between?

The Second Circuit Court of Appeals recently applied this standard in the context of a voluntary settlement in Scarangella v. Group Health, Inc.  This case involved a claim for medical benefits under an ERISA plan

Correcting 401(k) Plan Loans Under EPCRS

Correcting 401(k) Plan Loans Under EPCRS

July 2, 2013

Authored by: Denise Erwin and Chris Rylands

Participant loans from 401(k) plans must satisfy certain rules under section 72(p) of the Internal Revenue Code (the “Code”) to prevent the loan from being treated as a taxable distribution (sometimes called a “deemed distribution”).  The amount of the loan generally cannot exceed 50% of the participant’s vested account balance up to a maximum of $50,000 (with reductions for certain previous outstanding loans), the participant must be required to make level amortized payments at least quarterly, and the loan term may not exceed five years from the date the loan is funded unless the participant uses the loan to purchase his or her primary residence (in which case a longer period from the date of funding is allowed).

It is not uncommon for plan sponsors to discover that one or more of these rules have not been followed in administering the plan.  Failures to follow the terms of

Are You Smarter Than a Plan Administrator?

Are You Smarter Than a Plan Administrator?

February 26, 2013

Authored by: Denise Erwin and Jennifer Stokes

We want our employees to make healthy choices so that they will have long and healthy lives (and also to decrease the cost of health benefits).  We also want our employees to participate in the 401(k) plan so that they can build a nest egg for retirement and enjoy those long, healthy lives (and maybe also so that we don’t have to refund deferrals to our  HCEs).  Whatever our motivations, it seems that the latest trend in encouraging desired behavior in the employee benefits arena is gamification.  Think “Farmville” except the “crops” that your employees will be growing are their dreams that they want to harvest in retirement (travel, a vacation home, or just being able to continue to pay the bills).  Imagine those crops wilting unless they are “watered” and “fed” by employees who earn “plant food” and “water” by correctly answering retirement-related questions.  Maybe

Potential Refund Claim for FICA Taxes on Severance Payments Made in a Reduction in Force

On September 7th, 2012, the 6th Circuit upheld the District Court’s decision in U.S. v. Quality Stores, holding that severance payments made to employees in connection with an involuntary reduction in force were not “wages” subject to FICA taxes.  United States v. Quality Stores, Inc. (In re Quality Stores, Inc.), 424 B.R. 237 (W.D. Mich. 2010), aff’d, 10-1563, 2012 U.S. App. LEXIS 18820 (6th Cir. September 7, 2012).   In so holding, the 6th Circuit reasoned that such severance payments were supplemental unemployment compensation benefits (“SUB Pay”) within the meaning of § 3402(o)(2) of the Internal Revenue Code (the “Code”) exempt from FICA taxes.

This holding is directly at odds with the position of the Internal Revenue Service (“IRS”), set forth in Revenue Ruling 90-72, that such severance payments are wages for FICA purposes and not SUB Pay.  According to the IRS, the definition of SUB Pay

Limitation of Letter Forwarding Program May Affect VCP Submissions and Plan Terminations

In Revenue Procedure 2012-35, the Internal Revenue Service limited the use of its letter forwarding program to “humane purposes,” such as emergency situations, and specifically indicated that it will not be available to locate missing participants who may be entitled to a retirement benefit.  The new limitation applies to letter forwarding requests postmarked on and after August 31, 2012.

One of the practical implications of that was discussed by IRS officials in a recent phone forum.  The correction of certain operational failures under the Voluntary Correction Program (“VCP”) may affect former participants by, for example, requiring corrective allocations or distributions.  In those cases, the VCP submission must indicate the method that will be used to locate and notify those individuals of the failure and the correction.  Many submissions designate the IRS letter forwarding program as one or more methods that will be used for that purpose.  As a result,

Data Security Breaches – Are you Prepared?

Data Security Breaches – Are you Prepared?

March 16, 2012

Authored by: Denise Erwin

In the event of a data security breach, evaluating the situation and taking action right away is important. One type of data security breach that employers need to be aware of and that has been receiving attention lately relates to the privacy and security of health information. Over the past year, enforcement of the HIPAA Privacy and Security Rules has become a priority for the Department of Health and Human Services (“HHS”) Office of Civil Rights (“OCR”), as seen by the amount of settlement fines related to violations and the recent flurry of HIPAA compliance audits. For example, last year, Massachusetts General Hospital was fined $1 million to settle potential HIPAA violations related to patient information left on a train by an employee commuting to work. Just this week, HHS announced that Blue Cross Blue Shield of Tennessee agreed to pay $1.5 million to settle possible violations of

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