Court Rules Against Maryland County in Age Discrimination Case

The United States District Court for the District of Maryland ruled last week that Baltimore County, Maryland violated the Age Discrimination in Employment Act ("ADEA") by requiring public employees age 40 and older to contribute a higher percentage of their salaries to the county's defined benefit pension plan than younger employees contributed, even if the older and younger workers had the same years to go for retirement eligibility. See EEOC v. Baltimore County, No. 07-2500, (D.Md. Oct. 17, 2012). The EEOC had sued under the ADEA on behalf of older Baltimore County employees hired prior to July 1, 2007. In 2009, the Court granted summary judgment to the county, reasoning that the employer had shown that it was motivated by the permissible financial consideration of the “time value of money,” rather than the ages of new hires. On appeal by EEOC, however, the U.S. Court of Appeals for the Fourth Circuit vacated the district court's ruling and remanded for further consideration of whether the varying contribution rates for employees actually were justified by the alleged financial considerations.

 

Ruling on competing summary judgment motions, the district court determined that, because the early retirement option was strictly based on years of service, Baltimore County could not justify an age-based disparity in employee contribution rates. In granting partial summary judgment to the Equal Employment Opportunity Commission EEOC the court held that Baltimore County violated the ADEA because it had not shown any non-age-related financial considerations that justified the disparity in contribution rates between older and younger workers. The Court noted that, athough the County had been presented with the opportunity to depose representatives of Buck Consultants, the actuarial firm responsible for the county's Employee Retirement System since its inception in 1945, "the county has come forward with no evidence demonstrating why two workers with the same number of years until retirement eligibility should be required to contribute to the ERS at different rates.” The Court noted that, although linking an employee's contribution rate to his or her age made financial sense when the retirement system  provided for retirement at age 65, the county's 1973 decision to add an early retirement option based on years of service, irrespective of age, detached an employee's pension eligibility from age. The Court found that the EEOC had proved that the county's pension contribution system, which charged older employees a higher percentage of their salaries until the county adopted a flat-fee system effective July 1, 2007, facially discriminated based on age and could not be be justified by nondiscriminatory financial considerations.

 

 

Update - DOL Expects to Re-Prepose Fiduciary Rule in Early 2013

On October 23, 2012, the United States Department of Labor's ("DOL") Assistant Secretary of Labor for the Employee Benefits Security Administration ("EBSA"), Phyllis Borzi, announced that DOL expects to issue its re-proposal of its "fiduciary rule" early next year. DOL proposed the regulation, to revise and expand the definition of the term “fiduciary” under Section 3(21)(A) of ERISA in October 2010. After concerns about the proposed regulation as drafted were raised, DOL announced in September 2011 that it would withdraw and re-propose the rule. Borzi previously said that practitioners should expect the regulation to address several issues that some felt were unclear in the initial proposal, including drawing a brighter line between participant advice and education.

 

PBGC Announces New Hires to Assist in Proper Asset Valuation

On October 17, 2012, the Pension Benefit Guaranty Corporation ("PBGC") announced the hiring of new directors of benefits payments and quality management. The appointments were made in part due to  findings by the PBGC's inspector general that the agency undervalued the terminated pension plans of United Airlines. According to PBGC's Director, Joshua Gotbaum, “One of the issues that has been raised with our benefits department is that the agency was sloppy in checking the value of assets at United and elsewhere, and the agency was. And we've done a whole bunch of things to go back and redo the work.” PBGC on August 15, 2012 that it would begin making corrected payments and back payments to retired United Airlines pilots and management employees in September, following a completed a review of the air carrier's pension assets . PBGC determined after several audits that an agency-hired contractor had undervalued United Airlines' terminated pension plans by about 0.75 percent, or $58 million, by relying on trustee-furnished accounts that were out of date or not adjusted to reflect the fact that PBGC was assuming responsibility for the pensions. While it turned out that the agency only “shortchanged” some United employees by less than 1 percent of what they were owed, Director Gotbaum said that mistake needed to be remedied. “This mistake on relying on the trustees' numbers and getting stale numbers turned out to not have a large effect, but the fact of the matter is that any mistake, any mistake we do, undermines the confidence of anyone who gets a benefit from us. So it does not matter that in United we were paying 99.5 percent of the benefits to 8,000 people and 100 percent of the benefits to the rest. As a result, we have made a series of changes in the organization.” PBGC also appointed a director of the agency's new Quality Management Department. The department will focus on best practices for PBGC's benefits department, as well as the entire agency. “One of the points that our inspector general said was, you have a benefits group and you don't have any organization within PBGC to do quality management and to do oversight, except the IG, and the IG is not supposed to be working for the agency,” Director Gotbaum said. “So we took the IG's advice and we set up a separate operation: quality management. That is entirely new,” he said. PBGC also plans to use the Quality Management Department to review other “broader processes” of the agency.

PBGC's news release is at http://www.pbgc.gov/news/press/releases/pr12-29.html?cid=CPAD01ACOCT1720121.

Video Surveillance and ERISA Disability Claims

Many insurance companies use video surveillance in an attempt to "prove" that participants in ERISA-governed disability benefit plans are not "disabled" within the meaning of the plans. However, often times, the surveillance video footage doesn't really have any bearing on the individual's claimed disability. Insurance companies frequently require participants to submit to independent medical exams during the benefit application and appeal process and/or after benefits have already been granted. The companies then hire private investigators to take video footage of the participant the day of the exam. The investigators, in turn, videotape the participants leaving their homes, driving to the appointments, and returning home. Frequently, the video footage will show that the participant stopped to pick up a few groceries or dry cleaning on the way home. The insurers then argue that the video footage is proof that the participant is not "disabled" from performing their job duties.

Courts have historically been persuaded by this video evidence, even where it doesn't show the individual doing anything inconsistent with the claimed disability (i.e., just because one can drive to an appointment or carry a few groceries, doesn't mean that one can sit in front of a computer for the entirety of an eight hour work day). A recent case from the United States Court of Appeals for the First Circuit (the federal appellate court covering most of New England) shows that at least some courts will not be persuaded by such tactics. In Maher v. Massachusetts General Hospital Long Term Disability Plan (1st Cir., No. 10-1321, 12/7/11), the First Circuit ruled that a long-term disability benefit plan administrator gave too much weight to video surveillance of a plan participant's activities when it reviewed the participant's benefit claim, and thus the participant's claim had to be remanded to the administrator.

By way of background, Deborah Maher received long-term disability benefits through the Massachusetts General Hospital's long-term disability plan for chronic fibromyalgia. After five years, the plan's claim processor terminated Maher's benefits because surveillance videos showed Maher engaged in physical activity and playing with her son. The claim processor said that Maher was not totally disabled and could perform a sedentary nursing job. On administrative appeal, the plan administrator—Partners HealthCare System Inc.—upheld Maher's benefit termination. Maher then filed a lawsuit U.S. District Court for the District of Massachusetts. Applying a deferential standard of review, the district court upheld the plan's termination of Maher's benefits. In vacating the lower court's motion for summary judgment for the plan, the First Circuit failed to find any inconsistency between the video surveillance and the participant's claim of total disability. After working as a registered nurse, Maher subsequently appealed to the First Circuit. The appeals court was not persuaded, stating that Partners' video surveillance of Maher “confirm[ed] her lifestyle as generally housebound.” According to the court, 30 minutes of playing with her child in 90 hours of surveillance could not support the termination of Maher's benefits. The weight given to surveillance depends on both the amount and nature of the activity, the court said.

Settlement on the Horizon in Wal-Mart "Excessive Fee" 401(k) Lawsuit

The United States District Court for the Western District of Missouri granted preliminary approval earlier this week to a $13.5 million settlement of a putative "excessive fee" class action filed by participants in Wal-Mart Stores Inc.'s Section 401(k). In granting preliminary approval of the settlement, the District Court in Braden v. Wal-Mart Stores Inc., W.D. Mo., No. 6:08-cv-03109-GAF. noted that it was “preliminarily satisfied” that the settlement was “fair, reasonable, and adequate, such that it is appropriate to consider whether to certify a class for settlement purposes, whether the Settlement is sufficient to warrant issuance of notice to Class members, and whether the proposed notices adequately inform Class members of the material terms of the Settlement and their rights relating thereto.”

If the settlement is approved, Wal-Mart and co-defendant Merrill Lynch & Co. will pay $13.5 million to the participants, which will include attorneys' fees and costs. In addition, Wal-Mart's retirement plan committee will be required to: (1) retain an independent fiduciary to provide advice and recommendations on selecting and monitoring plan investment options; (2) review the consultant or independent adviser for conflicts of interest on an annual basis; (3) continue to make available to participants web-based investment education resources, including a retirement planning calculator; (4) remove and preclude the addition of fund investment options that are retail mutual funds; funds that pay Rule 12b-1 fees under federal securities law; and funds that provide revenue sharing, per-position or per-participant subtransfer agent fees, or other fees, to any party-in-interest as defined in Section 3(14) of the Employee Retirement Income Security Act, including the plan's trustee or recordkeeper; and (5) consider adding additional low-cost index funds as plan options.

By way of background, a plan participant filed a lawsuit in 2008 alleging that between January 2002 and the date he filed the lawsuit, the plan paid somewhere between $62 million and $92 million in fees to the plan's service providers. The plan, one of the largest Section 401(k) plans in the United States, offered its participants various investment choices, including 10 mutual funds, a common/collective trust, Wal-Mart common stock, and a stable value fund. All 10 of the mutual funds were retail class shares, which are generally more expensive than institutional class shares available to large retirement plans. The 10 mutual funds were predominantly actively managed rather than passively managed, which resulted in higher expenses, the lawsuit alleged.The Plaintiff further alleged in his lawsuit that the plan's fiduciaries who were responsible for the selection of the plan's investment options failed to prudently and loyally evaluate the investment options for participants and that they instead selected unreasonably expensive mutual funds that substantially diminished the retirement savings of plan participants. The lawsuit also alleged that the fiduciaries engaged in prohibited transactions under ERISA by allowing plan assets to be paid to the plan's trustee, Merrill Lynch, in the form of revenue-sharing payments. In addition, the lawsuit asserted that the fiduciaries breached their duties by failing to completely and accurately inform the plan's participants about the impact the mutual funds' excessive fees had on their retirement savings.

NLRB Votes To Shorten Timelines in Representation Elections

The National Labor Relations Board voted 2-to-1 last week to approve a resolution to proceed with a limited number of amendments to the NLRB election process. The amendments are drawn from a more comprehensive proposal put forward by the Board in June. Chairman Mark Pearce and Member Craig Becker voted in favor of the resolution, while Member Brian Hayes voted against it, during a one-hour public meeting at Board headquarters on Wednesday, Nov. 30. A video recording of the meeting is available on the Board website (www.nlrb.gov). As a result of the vote, a final rule will be drafted containing the proposed six amendments, which seek to reduce "delays" and "unnecessary" (in the words of the NLRB") litigation in the pre-election process. The final rule will be subject to approval of the Board, and if approved, will be published in the Federal Register.

The Board's action is a result of the failure of the Employee Free Choice Act ("EFCA") to pass Congress. In June, the Board submitted a proposal to compress the union representation election process into a shorter time frame. That proposal drew criticism from some in Congress and the business community, who argued that shortening the (what many employers view as an already short) time frame would deprive employers of the ability to effectively communicate their views to employees regarding union representation prior to elections. This, according to the critics, would result in an unbalanced playing field - with unions being able to communicate with employees about the benefits of union representation both pre- and post-petition (i.e., over a lengthy period of time) and employers' communications with employees in this regard being limited to a matter of days or weeks.

Last week, Board Chairman Mark Pearce offered a modified version of new regulations without some of the most controversial portions. The cumulative effect of these provisions is to shorten the time before a representation election is conducted following the filing of an election petition by a union seeking to represent a group of employees. As relevant here, the Resolution provides as follows:

• Appeals to the Board pertaining to both pre-election and post-election issues are consolidating into one post-election "request for review," resulting in a shortened period from petition filing to election.
• By eliminating the possibility of appealing pre-election matters, the time between the filing of an NLRB election petition and an election will be significantly reduced.
• The NLRB Hearing Officer will determine whether post-election hearing briefing is necessary.
• The Hearing Officer may reject an attempt by the parties to fully litigate issues not deemed to be related to a "Question Concerning Representation" ("QCR"). Although the Board has not yet defined that term for purposes of the rule, there are indications that the majority does not consider determination of an individual's supervisory status to be relevant to the determination of a QCR. That often crucial initial question for employers would be put off until after the election, where long and drawn out hearings could defeat the majority's articulated quest for speedy resolution.

The portions "left for future consideration" from the original proposal are:
• Electronic filing of election petitions;
• Mandatory scheduling of hearings seven days after the notice of hearing is served;
• Filing of position statements by the parties;
• Inclusion of telephone numbers and e-mail addresses on the Excelsior voting list; and
• Reducing an employer's time to file an Excelsior voting list from seven to two working days.

The Resolution must still go through formal drafting procedures and a final vote followed by review by the Office of Management and Budget. However, since Member Becker's appointment expires at the end of the year and the Board will be unable to act with only two members in place, it is expected that Board action will occur before December 31.

Court Rules for Xerox on Remand in Frommert v. Conkright

The United States District Court for the Western District of New York ruled recently that Xerox Corp.'s pension plan administrator reasonably determined that Xerox can offset the accrued benefit of employees rehired by the company prior to 1998 by the actuarial equivalent of their earlier lump-sum distributions. (Frommert v. Conkright, W.D.N.Y., No. 00-CV-6311L, 11/17/11). In so ruling the District Court afforded deference to the administrator's plan interpretation, following the United States Supreme Court's remand of the case.

The case arose from a dispute over Xerox's use of a “phantom account offset” to calculate the benefits of employees who were rehired after they had previously received lump-sum distributions of their pension benefits. A group of employees argued that the use of this offset violated ERISA. In 2004, the District Court ruled that Xerox did not illegally reduce benefits by applying the offset . On appeal, the U.S. Court of Appeals for the Second Circuit ruled that Xerox had violated ERISA's anti-cutback provision, and remanded the case to the district court, instructing it to craft a remedy. The administrator proposed taking prior distributions into account by expressing those distributions as an annuity starting at normal retirement age. According to the administrator, this approach would offset each employee's accrued benefit by the actuarial equivalent of the prior lump-sum distribution. The District Court did not give any deference to this proposed interpretation and instead ruled that Xerox had to pay anyone rehired prior to 1998 who had received a distribution of benefits the difference between the lump-sum pension benefits they received when they first left Xerox and the benefit they earned after they were rehired. The Second Circuit affirmed. In April of 2010, the Supreme Court ruled that the lower courts had to give deference to the administrator's interpretation of the plan with respect to the treatment of prior distributions to employees who were rehired prior to 1998 and remanded the case to the Second Circuit, which in turn remanded the case to the district court.

In the current decision, the District Court, guided by the Supreme Court's “admonitions,” ruled the administrator's proposed interpretation was reasonable and accepted that interpretation. The District Court said the administrator's interpretation reasonably and equitably took into account the time value of money. According to the District Court, the administrator's proposal was a reasonable attempt to apply the plan in a way that took into account prior distributions, consistent with what was disclosed to the employees in plan summaries and other communications. The District Court rejected the employees' argument that the administrator's interpretation could not stand because they were not provided with adequate notice of any “appreciated” offset to their benefits. The District Court noted the administrator's proposal was equitable because the employees were on notice that some offset would be applied to their prior distributions.