Guidance Issued on Definition of Normal Retirement Age for Pension Plans
Final regulations have been issued that provide guidelines for the definition of “normal retirement age.” Normal retirement age is relevant for several purposes under a plan. For example, full vesting is required on attainment of normal retirement age. Clear guidance has been in place to determine the latest date at which normal retirement age can be set (later of age 65 or five years of participation). Another qualified plan requirement where normal retirement age is a factor applies to retirement plans that are pension plans (defined benefit and money purchase plans). For these plans, in-service distributions are permitted only on attainment of normal retirement age. The new regulations provide guidelines on how early normal retirement age may be. Normal retirement age may not be earlier than the typical retirement age for the industry in which the participants covered under the plan are employed. The regulations provide that a normal retirement age of age 62 (age 50 for plans covering public safety employees) is deemed to be not less than the typical retirement age. This is consistent with the provision of the Pension Protection Act of 2006, which allows in-service distributions from pension plans to occur at age 62. The regulations further provide that normal retirement age between age 55 and 62 will generally be given deference if the employer has made a good-faith determination of the typical retirement age for the industry. A normal retirement age earlier than age 55 is presumed to be lower than the typical retirement age in the industry, absent facts and circumstances demonstrating to the IRS otherwise. (T.D. 9325)

2008 Health Savings Account/High Deductible Health Plan Limits
The Tax Relief and Health Care Act of 2006, signed into law last year, included a number of changes in the rules governing Health Savings Accounts.

One significant change requires the IRS to publish the adjusted Health Savings Account limits for a year no later than June 1 of the preceding year. This was intended (in part) to give plan sponsors the lead time needed to make any necessary plan changes and to inform employees of the new limits.

IRS announced the 2008 limits on May 11, 2007, two weeks before the June 1, 2007 deadline. The 2008 HSA contribution limits are:

Annual Contribution Limits
Self-Only $2,900
Family $5,800

In order to qualify as an eligible high-deductible health plan (HDHP), the plan must have a minimum annual deductible and a maximum out-of-pocket limit. The 2008 minimum annual deductible and maximum out-out-of-pocket limits are:

Minimum HDHP Deductible
Self-Only $1,100
Family $2,200

Maximum Out-of-Pocket
Self-Only $5,600
Family $11,200

(Rev. Proc. 2007-36)

CASES

Employer Funded LTD Policy Is an ERISA Plan
The United States District Court for the Northern District of Georgia, Atlanta Division recently held that an employee’s state law breach-of-contract claims were preempted by the Employee Retirement Income Security Act (ERISA). A disabled employee sued his long-term disability (LTD) insurance provider, claiming that the insurer violated state contract law by prematurely terminating his disability payments. The court granted summary judgment in favor of the insurance provider, ruling that the employee’s state claims were preempted by ERISA because the LTD insurance was part of an employee benefits plan and the employee’s claims related to that plan. Although ERISA generally preempts state law, the Department of Labor (DOL) provides a regulatory “safe harbor” for certain voluntary plans. Specifically, ERISA does not preempt an insurance program offered to employees so long as the employer does not subsidize premiums, require employees to participate, endorse or encourage participation in the program, assist with claims, negotiate premiums or benefits, receive a contract in its name, or choose coverage or carriers. In fact, under the DOL safe harbor, employer involvement is limited to publicizing the program and collecting and remitting premiums. In this case, the court ruled that the DOL safe harbor did not apply because the employer paid the employee’s insurance premiums. In its ruling, the court noted that there is precedent for the DOL safe harbor applying in some cases where employers paid employee premiums. However, in such cases the employees declared the insurance premium payments as income on their individual tax returns. In essence, by recognizing the insurance premium payments as income, the employer’s payments can sometimes be treated as a payroll deduction. Since, in this case, the employee did not declare the employer-paid premium as income on his tax return, the DOL safe harbor did not apply, and ERISA preempted his state law claims. (Crooms v. Provident Life and Accident Ins. Co., ND Ga. 2007)

Flawed Claims Review Results in LTD Benefit Payment
A divided Sixth Circuit granted long-term disability benefits to a plaintiff because of the inadequate evaluation of her administrative appeals. The plaintiff had received extensive medical treatment over a period of several years for severe and chronic back pain. After receiving six months of short-term disability benefits, the plaintiff applied for long-term disability (LTD). Her initial claim was denied for failure to provide medical records as requested by the third-party administrator (TPA) hired by her employer to handle claims administration. The plaintiff’s subsequent administrative appeals were also denied. In denying the administrative appeals, the TPA relied on evaluations from independent physicians despite apparent problems with those evaluations, including contradictions, reliance on prior evaluations, and a failure to interview the doctors who were treating the plaintiff. The court unanimously ruled that the TPA’s reliance on the evaluations made by the independent physicians was arbitrary and capricious. As a remedy, two of the three judges on the panel ruled that the record contained enough evidence to clearly establish that the plaintiff was disabled and entitled to LTD benefits. The dissenting judge opined that the appropriate remedy should be to remand the case to the TPA for an appropriate evaluation. This case illustrates the need for plan administrators to be actively involved in the claims review process, even in cases where an independent physician is involved. Plan administrators should assess the evaluations received from independent physicians to ensure that the evaluations are thorough, detailed, and complete. (Cooper v. Life Insurance Co. of North America, 6th Cir. 2007)

Pre-Employment Benefits Promises — ERISA Does Not Preempt Claim for Reliance Damages
In 2004, Pfizer Inc. hired Dale Thurman as a veterinary pathologist. Thurman alleges that, during employment negotiations, the parties discussed the amount of Thurman’s expected retirement benefits, and he was told he would be eligible for full retirement at age 62 and would receive a monthly pension allowance of approximately $3,100 per month. In reliance on the benefits promised by Pfizer, Thurman left his former job for the Pfizer position. Shortly after he began working for Pfizer, Thurman was notified that the pension information he had received was incorrect and that his monthly pension compensation would actually be closer to $816 per month.

Thurman filed suit, claiming that if it wasn’t for the misrepresentations regarding his pension plan, he would not have resigned from his prior job, which offered higher annual compensation, stock options, and “other economic perquisites.” Thurman requested either (1) relief, including amounts for loss of stock options, loss of salary, loss of benefits, moving expenses, and other consequential economic loss (“reliance damages”), or (2) the approximately $2,300 per month difference between the pension benefits Pfizer promised him and those to which he is actually entitled under Pfizer’s plan (“expectation damages”).

The trial court dismissed Thurman’s claims because they relate to a pension plan and are therefore preempted by ERISA. Thurman dropped his claim for expectation damages, but appealed his right to pursue his claim for reliance damages. Pfizer argued that Thurman should have sued for a breach of fiduciary duty under ERISA, and that his suit was merely an ERISA claim disguised as state-law misrepresentation claims. The federal appellate court rejected Pfizer’s argument, holding that the portions of Thurman’s state law claims requesting reliance damages and rescission of his participation in the plan are not preempted by ERISA. The court stated that Thurman could not have brought a claim for breach of fiduciary duty for the alleged misrepresentations because, at the time the alleged misrepresentation was made, Thurman was not yet a Pfizer employee, and he was not yet a participant or beneficiary under the plan, which means that no fiduciary relationship existed. The court also noted that Thurman’s state-law claims for reliance damages have such a “tenuous, remote, or peripheral effect on the plan” that they are not preempted by ERISA.

This case serves as a reminder to employers to be careful in making promises to prospective employees. While ERISA preemption is broad, there are circumstances in which it will not operate to preempt certain state-law claims. (Thurman v. Pfizer Inc., 6th Cir. 2007)

Collective Bargaining Requires Benefit Contributions for All Covered Employees
A collective bargaining agreement can require an employer to make fringe benefit contributions for all employees covered by the agreement, regardless of union membership. This conclusion was reached by the Federal District Court for the Western District of New York in a case involving an employer and its workers engaged in road construction and maintenance. Following an audit, a union health and welfare fund sued to collect over $300,000 in unpaid fringe benefit contributions attributable to workers who were not union members. The union fund argued that the collective bargaining agreement extended its contribution obligation to all workers performing work under the agreement, regardless of union membership, while the employer limited its payment to the fund to those workers who had signed union authorization cards. Summary judgment was rendered in favor of the welfare fund, as the employer could not establish an arguable position that union membership was a prerequisite for fund payment. While this result may not be novel, it illustrates the importance of understanding the implications of benefit plan provisions in union contracts. (Trustees of the Buffalo Laborers’ Pension Fund, Buffalo Laborers’ Welfare Fund and Buffalo Laborers’ Training Fund vs. Accent Stripe, Inc., WDNY 2007)

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