This mixed question of fact and law has perplexed courts perhaps as much as it has confused benefits managers in corporations across the nation.  However, for employers operating within the jurisdiction of the Eighth Circuit Court of Appeals (AR, IA, MO, MN, NE, ND, and SD) this question has recently become easier to answer with respect to single-employee agreements.  In August, the Eighth Circuit parted with federal courts in the Fourth, Seventh, and Eleventh Circuits by holding in Dakota, Minnesota & Eastern Railroad Corp. v. Schieffer that a contract governing severance benefits for a single employee does not constitute an ERISA plan.  

Earlier this year, a split Seventh Circuit panel reversed, in part, summary judgment previously granted in favor of Kraft Foods Global, Inc. (“Kraft”) in a class action ERISA breach of fiduciary duty case involving “excessive fees” claims in connection with Kraft’s 401(k) plan.　The majority opinion was authored by Judge Adelman, an Eastern District of Wisconsin judge sitting by designation in the Seventh Circuit, and was joined by Judge Rovner.

This entry provides a high-level summary of the issues reversed by the court:

• The Company Stock Fund Issue:  In 2003, Kraft’s then-parent company, Altria Group, Inc. (formerly Philip Morris), made the decision to move the company stock fund in its 401(k) plan from the unitized stock fund (which generally employs a cash buffer) model to “real time” trading where each participant owned shares of the relevant stock rather than units of a fund that invested in the stock. Kraft plan fiduciaries considered similarly moving away from the unitized stock fund mode; however, at that time, Hewitt (the Kraft plan recordkeeper) did not offer real time trading. The court also noted that the unitized model offered advantages (e.g., faster trades and lower transaction costs by “netting” participant transactions).  Based on the Court’s review of the record, the Kraft plan fiduciaries considered, but never　actually made a decision regarding, whether to retain the unitized fund or move to real time trading.  On remand, the Seventh Circuit majority ruled that Kraft must offer evidence that its plan fiduciaries made a decision
  

Now that same-sex marriage is recognized in New York, what steps do employers need to take with respect to employee benefits? The to-do list must consider the federal Income Tax Code, ERISA, insurance law and of course New York’s Marriage Equality Act (“Act”), which took effect July 24, 2011. This is the first in a series of posts that will discuss this topic.

The Act recognizes all legally performed marriages between same- and opposite-sex couples, whether the marriage took place in New York or elsewhere. This means that same-sex marriages, even those entered into under the laws of another state, must be treated equally under the laws of New York.

In Clarcor, Inc. v. Madison Nat’l Life Ins Co. (M.D. Tenn. 2011), the District court for the Middle District of Tennessee upheld a denial of stop-loss coverage by Madison National Life for expenses incurred by an employee who was put on short term disability following FMLA leave.  The employee went on FMLA leave and when that leave expired, she did not return to employment.  Instead, the employer put her on short-term disability. Following the expiration of short-term disability, her employment was terminated and she was offered COBRA.

However, under the eligibility provisions of the self-funded health plan, she was required to be either actively working, on FMLA or on COBRA.  Because she was not in any of those classes, she was ineligible. The employer had a policy providing for continued coverage while employees were on short-term disability, but the policy was not part of the formal plan document.  Therefore, the court said, the policy was not sufficient to establish her eligibility and the stop-loss carrier was correct in denying coverage for her medical expenses.

On May 11, 2011, Georgia Governor Nathan Deal signed House Bill 30 into law, beginning a new era for non-compete, non-disclosure, and non-solicitation agreements under Georgia.  Georgia historically has been an inhospitable forum for employers seeking to enforce restrictive covenants against former employees.  Georgia’s new Restrictive Covenant Act (the “Act”) clarifies and strengthens the ability of employers to restrict conduct during and after employment.

Importantly, the Act applies only to Georgia restrictive covenant agreements entered into on or after May 11, 2011.  Employers with operations in Georgia should revisit their restrictive covenant agreements and consider revising their agreements to take advantage of protections of the new law.  Historically, Georgia law has not required new or additional consideration to support a new restrictive covenant agreement signed by a current employee, so employers are in a good position to strengthen their competitive protections, at this time, should they choose to do so.

Perhaps the most significant change of the Act, courts are now expressly authorized to modify or “blue pencil” an overbroad restrictive covenants entered into on or after May 11, 2011.  Accordingly, courts have the discretion, but are not obligated, to strike out or remove language that renders the restrictive covenant unenforceable.  Given the prospective nature of the Act, Georgia common law will still govern agreements entered into prior to the effective date of the Act, which means if any restrictive covenant in such agreements is overbroad it will not be enforced.

Earlier this summer, the DOL issued a “FAQ on Credit Ratings and Individual Prohibited Transaction Exemptions”  concerning how Section 939A of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) will impact prohibited transaction exemptions (“PTEs”) granted to individual fiduciaries or transactions under Section 408(a) of ERISA.  Section 939A of the Dodd-Frank Act generally requires federal agencies to review and modify existing regulations that refer to, or require reliance on, credit ratings within one year following the enactment of Dodd-Frank (i.e., by July 21, 2011).   Certain individual PTEs refer to or rely upon credit ratings.

In its FAQ, the DOL confirmed its position that individual PTEs do not qualify as “federal regulations”; accordingly, Section 939A of the Dodd-Frank Act does not require review and modification of previously granted exemptions. This means that individual PTEs will remain in force with no modifications despite the Section 939A July deadline.

Arguably, Major League Baseball (“MLB”) offers one of the best pension and healthcare programs in all of sports. Players vest in their pensions after 43 days on the active roster and just one day qualifies a player for lifetime healthcare. Playing isn’t even a requirement, benchwarmers may qualify for benefits as well. After 43 days, players qualify for the minimum benefit of $34,000 per year and those with 10 years of service receive a pension of approximately $100,000 annually. In 2010, the MLB Players’ Pension Plan reported assets of over $1.3 billion for approximately 8,200 participants.

However, these generous benefits have not always been available. While baseball players first obtained a pension in 1947, some claim the plan was very poor. Pension plan vesting and lifetime healthcare required four years of service. Over the years the MLB Players’ Association negotiated higher benefits and won more concessions in the ’72 and ’81 strikes, including the reduced 43 day pension vesting requirement. But there are 850 former players who retired between 1947 and 1980 with less than four years of service still without pensions or healthcare benefits. In 2002, three of these former players filed a class action lawsuit against MLB demanding pension benefits, but the suit was dismissed.

According to The New York Times, MLB and the Players’ Association recently agreed to provide payments to these former players. Payments may be up to $10,000 annually and will be based on their length of service. While MLB and the Players’

According to a recent article in the Wall Street Journal, some employers are taking a hard look at their 401(k) plans’ target-date investment funds.  These funds target a future year geared to the expected retirement date selected by the participant.  They attempt to simplify investing for the average participant by gradually adjusting the asset allocation over time by moving away from equities toward fixed income investments, becoming more conservative, as the target date approaches.  This approach accepts more volatility in hopes of obtaining larger gains at younger ages and less volatility and opportunity for gain as retirement and the need to use the money approach.

While these fast growing funds became popular by offering a convenient one-size-fits-all choice for investors, recent criticisms imply simpler might not always be better.  The 2008-09 financial crisis and the recent 2011 volatility highlight that target-date funds simply offer investors a different (though usually more complex) portfolio management style and do not eliminate investment risk.  Also, scrutiny over fees and ability to customize portfolios to a specific group are areas prompting employers to take another look to find ways to benefit employees.

Last Friday, the Seventh Circuit issued an opinion overturning the lower court’s dismissal of a lawsuit brought against Hofer, an employee of AnchorBank, alleging  that, along with two other employees, Hofer engaged in a collusive trading scheme in violation of Sections 9(a) and 10(b) of the Securities Exchange Act of 1934 (“1934 Act”).  The two other employees settled with AnchorBank before the lawsuit was filed.

In its second amended complaint, AnchorBank alleged that Hofer and his two co-conspirators coordinated their purchase and sale of units in the AnchorBank Unitized Fund (“Fund”), which was an investment option in the AnchorBank 401(k) plan that held cash and company stock.  The alleged scheme involved the coordination of the sale of Fund units, triggering a payout from the Fund’s cash reserves to the suspected co-conspirators.  Since the trustee was required to maintain a particular cash-to-stock ratio in the Fund, it was then forced to sell AnchorBank stock on the open market to replenish the Fund’s cash reserves.  This heightened trading activity by the alleged co-conspirators caused the volume of AnchorBank stock on the market to be relatively high as compared to normal trading and, given the large volume of AnchorBank stock being sold at or around the same time, AnchorBank’s stock price declined.