Employee Benefits Law Outline

Employee Benefits Law Cases and Casenotes

Colleen E. Medill, Introduction to Employee Benefits Law: Policy and Practice (Thompson West 2004).

Donovan v. Dillingham:

United States Appellate Court, 1982.

Statement of the Case:

Secretary of Labor brought suit under ERISA against trustees of Union Insurance Trust alleging they had a fiduciary duty under part 4 of Title I of ERISA when employees got health insurance through the organization.

Procedure:

Trial court dismissed for lack of SMJ.

Facts:

Trust was developed to allow employers of small numbers of employees to secure group health insurance at favorable rates, but the trustees claim that there was not an ERISA fiduciary duty because it was not an insurance plan, just a buying and selling of insurance.

Issue:

Whether there is a benefits “plan” recognized under ERISA, so that fiduciary duties exist, when the trustees claim that this was just the sale of insurance, not a “plan.”

Procedural Result:

Remanded for determination of the issue.

Holding:

No judgment.

Reasoning:

A welfare benefits plan requires:

a “plan, fund, or program”

established or maintained
by an employer or an employee organization, or both
for the purpose of providing medical, surgical, hospital care, sickness, accident, disability, death, unemployment, vacation benefits, apprenticeship, training programs, day care centers, scholarship funds, prepaid legal services, or severance benefits
to participants or their beneficiaries

ERISA does not require a formal, written plan, but a plan can be inferred by actions.

Dillingham “Plan” Factors: A “plan, fund, or program” under ERISA is established if, from the surrounding circumstances, a reasonable person:

can ascertain the intended benefits,

a class of beneficiaries,
the source of financing, AND
procedures for receiving benefits.

Additional Points:

Fort Halifax Packing Co. v. Coyne (1987): Supreme Court ruled that “ongoing plan administration” (such as determining eligibility for benefits, calculating benefit amounts, and monitoring plan funding) was another important factor to consider

Musmeci v. Schwegmann Giant Super Markets, Inc.:

United States Appellate Court, 2003.

Procedure:

Trial court ruled that the voucher plan fell under ERISA and the ?s were entitiled to money judgments.

Facts:

Store operated with over 5000 employees and 40 stores, and the owner wanted to give free groceries for life to long term employee retirees, by getting them vouchers per month, out of the company’s general revenue. The business was sold and the recipients were notified that they no longer would get vouchers, then suing on the claim they had a vested pension voucher plan.

Issue:

Whether the admitted “voucher plan” provided to retired employees constituted “retirement income” to which ERISA applied.

Procedural Result:

Reversed for ?.

Holding:

The admitted “voucher plan” provided to retired employees constituted “retirement income” to which ERISA applied.

Reasoning:

Court broadly interprets “income” under the IRC to mean anything that can be valued as currency, and does so in this case.
This plan gave the employees currency to pay for groceries.
This is different from waiting for a seat on a plane, if one was open.
Dillingham Construction does not apply since it is a preemption case.

Nationwide Mutual Insurance Co. v. Darden:

United States Supreme Court, 1992.

Procedure:

Trial court ruled Darden was an independent contractor, and thus not an employee. Appellate court reversed.

Facts:

Darden worked for Nationwide as an insurance salesman paid on commission, and enjoyed an Agent’s Security Compensation Plan that stated he would lose his entitlement to the plan if within a year of his termination sold insurance for a competitor within 25 miles of his old office or got a Nationwide policyholder to cancel a policy. He was eventually fired, started selling insurance himself, was cut off from the pension, and sued, claiming that his benefits had vested and could not be cancelled.

Issue:

Whether Darden, a commission insurance salesman, was an “employee” for the purpose of ERISA.

Procedural Result:

Judgment reversed for ?.

Holding:

Darden, a commission insurance salesman, was an “employee” for the purpose of ERISA, since the definition is based on traditional agency law principles.

Reasoning:

Congress intended for an employee to fall under the conventional “master-servant” understanding of what an employee was, namely considering the hiring party’s right to control the manner and means by which the product is accomplished.

Curtiss-Wright Corp. v. Schoonjongen:

United States Supreme Court, 1995.

Procedure:

District Court ruled that the claim was a valid amendment to the plan, since it stated “The Company.” Appellate court reversed, calling the clause too vague.

Facts:

Curtiss-Wright maintained a postretirement health plan for employees who worked at certain facilities. In 1983, they amended the plan to state that when their old plant closed, the beneficiaries would no longer receive the benefits. They later announced that the ?s' plant was closing, and they were being terminated from the plan.

Issue:

Whether the standard provision in many employer-provided benefit plans stating “The Company reserves the right at any time to amend the plan” sets forth an amendment satisfying ERISA § 402(b)(3), which states that every employee benefit plan must provide a procedure for amending the plan, and identifying those who have authority to amend the plan.

Procedural Result:

Judgment reversed for ?s.

Holding:

The standard provision in many employer-provided benefit plans stating “The Company reserves the right at any time to amend the plan” sets forth an amendment satisfying ERISA § 402(b)(3), which states that every employee benefit plan must provide a procedure for amending the plan, and identifying those who have authority to amend the plan.

Reasoning:

Everyone agrees that ? had the right to amend the clause, and the “company” is a valid person, and “any time” is a valid procedure.
This clause is deceptively simple, as it eliminates tons of other options.

Glocker v. W.R. Grace & Co.:

United States Appellate Court, 1995.

Statement of the Case:

Policy holder’s widow, Mrs. Glocker, is suing the decedent’s former employer and Medicare plan provider, Grace, for failure to pay medical benefits, when Mr. Glocker’s doctor said he needed private nurses to perform custodial type functions for him, until his death from prostate cancer, and for a civil penalty, when Grace failed to provide “the whole policy” upon 16 requests by Mrs. Glocker’s attorney and well over a year in time, only providing it upon the filing of a motion to compel and amending the complaint to include a count for civil penalties under ERISA.

Procedure:

Trial court granted summary judgment on both issues to Grace, claiming “custodial nurses” were not covered by the insurance plan, and she was not prejudiced by the delay.

Facts:

See above.

Issue:

Whether an insurance company should reimburse the policy holder’s widow for medical benefits, when the holder’s doctor said he needed private nurses to perform custodial type functions for him, until his death from prostate cancer, and whether the plan provider should pay a civil penalty, when they failed to provide “the whole policy” upon 16 requests by the policy holder’s attorney and well over a year in time, only providing it upon the filing of a motion to compel and amending the complaint to include a count for civil penalties under ERISA.

Procedural Result:

Judgment affirmed in part, reversed in part, and remanded for determination of the due civil penalty.

Holding:

The insurance company should NOT reimburse the policy holder’s widow for medical benefits, when the holder’s doctor said he needed private nurses to perform custodial type functions for him, since the plan specifically denies coverage for custodial nurses, BUT, the plan provider SHOULD PAY a civil penalty, when they failed to provide “the whole policy” upon 16 requests by the policy holder’s attorney and well over a year in time, only providing it upon the filing of a motion to compel and amending the complaint to include a count for civil penalties under ERISA, since prejudice is merely a factor to consider, not dispositive alone, when deciding whether to fine a plan provider.

Reasoning:

Regarding coverage:

The plan states that no medicare is provided for custodial care, which is still covered as defined in the plan when the nurses are performing medical treatment which can reasonably be expected to substantially improve the individual’s medical condition.
In this case, the nurses helped him with everyday activities, was custodial in nature, and because he was terminally ill, this help was not designed to help him improve his condition, but to comfort him.

Regarding the fine:

Grace failed to provide “the whole policy” upon 16 requests by the policy holder’s attorney and well over a year in time, only providing it upon the filing of a motion to compel and amending the complaint to include a count for civil penalties under ERISA.
No one factor is dispositive in determining whether to grant a civil fine under ERISA, and here, the factors indicate that one should be granted, since the only reason Grace said it couldn’t produce was because they “couldn’t find everything.”
Civil Fine Factors Under ERISA: The fines average between $10 and $30 per day
- Bad Faith
- Prejudice to the plan holder
- Length of delay
- Time and expense incurred in trying to compel production
- Amount needed to suitably punish the plan provider
Excuse from Fine Rule: ERISA 502(c)(1) excuses failure to comply with a request for information if it results “from matters reasonably beyond the control of the administrator.”

Lorenzen v. Employees Retirement Plan of the S & H Co. (7^th Cir. 1990, Posner):

Statement of the Case:

Widow of a deceased S & H employee is suing the company’s ERISA qualified retirement plan for violating its fiduciary duties to her husband and herself, causing a loss of retirement benefits, when her husband stayed on the job past his planned retirement date, at S & H’s request, to finish some loose ends, and then died before his defined benefits pension LUMP SUM distribution commenced, thus leaving his wife with only a Qualified Joint Survivor Annuity, which is 50% of what she would otherwise have inherited from him.

Procedure:

Lower court ruled for wife, for $192,000, but she appealed anyway, for prejudgment interest.

Facts:

Husband desired to take the lump sum, instead of annuity with 50% payments for his wife.
He would have probably reached the date of his true retirement if wife had not unplugged him from life support after his heart attack.

Issue:

Whether a wife is due the lump sum amount her husband planned to take, instead of a 50% QJSA, when he was asked to stay on for a few months and then died.

Procedural Result:

Judgment reversed for Employer.

Holding:

A wife is NOT due the lump sum amount her husband planned to take, instead of a 50% QJSA, when he was asked to stay on for a few months and then died, since they were benefiting from the retirement income getting larger while the husband kept working.

Reasoning:

The husband voluntarily took a risk, not thinking he would die.
The couple was benefiting from the retirement income getting larger while the husband kept working.
There was no duty by the Company to advise the husband that if he died, the wife would only get a QJSA, or to the wife as to the repercussions of unplugging her husband’s life support.

Additional Points:

Spousal Waivers of QJSA and QPSA Requirements (Treasury Department Regs)
- Spouse must consent to the substitution of any nonspouse beneficiary.
- Consent is personal only to that spouse, and is not binding on subsequent spouses.
- Cannot be waive by premarital agreement, either.

Dickerson v. Dickerson (US District Court, Tennessee 1992):

Statement of the Case:

Action is a demand by the divorcing wife, Janet Dickerson, for the immediate alienation and distribution to her of a portion of her former husband’s pension assets under the terms of the circuit court’s divorce decree, when the Southern Electrical Retirement Fund (SERF) contends that such a distribution of funds before the husband reaches the age of disbursement (55 years old – in 2013) violates ERISA § 206(d) and Code § 401(a)(13) and 414(p), and SERF seeks declaratory judgment that the divorce decree does not meet the Qualified Domestic Relations Order (QDRO) requirements.

Procedure:

Circuit court wrote the failing decree.

Facts:

Divorce proceedings divided the marital assets, including the wife being granted $8,000 to be paid from the husband’s pension benefits.
Circuit Court wrote an alleged Qualified Domestic Relations Order, which provided that the money be disbursed from the fund “as soon as administratively possible.” This was taken to mean, and meant to mean, now.

Issue:

Whether the divorce decree is a QDRO within the meaning of ERISA § 206(d), when it entitles the wife to an immediate disbursement to her from her ex-husband’s pension plan, even though he is not at the age of disbursement.

Procedural Result:

Divorce decree is rejected.

Holding:

The divorce decree fails to meet the QDRO requirements within the meaning of ERISA § 206(d), since it entitles the wife to an immediate disbursement to her from her ex-husband’s pension plan, even though he is not at the age of disbursement.

Reasoning:

Rules:
- ERISA contains a spendthrift provision that prohibits alienation or assignment of retirement benefits. § 206(d)(1)
- In order to protect women who may suffer inequities as the economic victims of divorce or separation from their wage earning husbands, the Retirement Equity Act of 1984 creates an express exception to the spendthrift provision, by allowing for a QDRO.
Dickerson is not a plan participant, and is merely an alternate-payee / beneficiary.
Policy:
- If the courts allowed divorce decrees to cause sudden, unanticipated, and immediate withdrawals from pension funds, it would be in contravention of the purposes of ERISA.
QDRO Rule: A domestic relations order is not a “qualified order” if it requires a plan to provide any type of form or benefit, or any option, not otherwise provided under the plan.
- Thus, this is not a QDRO, since it would require disbursement in a way not allowed under the plan.

Additional Points:

QDRO Review Procedures:

Plan administrator is responsible for determining whether a domestic relations order issued by a state court satisfies the statutory requirements for a QDRO.
- Plan administrator is not required to look beyond the face of the order to ascertain its validity.
Administering funds incorrectly would violate both:
- IRC: Since it breaks the anti-alienation rule, it causes plan disqualification.
- ERISA: For the same reasons, but also is a breach of fiduciary duty, and triggering civil actions.
To avoid problems, plan administrators generally have “model” QDROs for alternate-payees to use.

Income and Gift Tax Consequences of QDRO Distributions:

Distribution to an alternate-payee is considered in that person’s gross income, UNLESS it is done as a direct rollover.
If the alternate-payee is a dependent child of the participant, the income is counted as the participant’s own gross income.

Dividing Benefits Under QDRO:

Shared Payment Approach: Used for alimony or child support when participant has already begun to receive payments from the plan.
- QDRO requires an amount to be paid in each installment to the alternate-payee.
Separate Interest Approach: Divides plan benefits as part of a marital property settlement.
- The benefit for the alternate payee is turned into a separate account, which is independent in time and form from the participant.

Central States, Southeast, and Southwest Areas Pension Fund v. Gerber Truck Service, Inc. (7^th Cir. 1989):

Statement of the Case:

Central States, Southeast, and Southwest Areas Pension Fund seeks payment to the fund in accordance to the collective bargaining agreement, when BOTH parties had agreed to only include 3 truck drivers in the multiemployer plan, but executed documents stating that either all drivers or all employees would be included, since that was what was available to them.

Procedure:

District court held that Gerber’s obligations were limited to the Fat’s 3, that Gerber’s obligation ended in 1982 upon oral notice, and that liquidated damages for the fund were not in order.

Facts:

Gerber, a small trucking company, purchased another small trucking company, and assumed its 3 drivers (Fat’s 3), union employees, and its other employees.
Fat’s 3 were close to retirement, and union workers, so Gerber approached the Teamsters Local and asked if he could joint the union’s collective bargaining agreement, and keep just the 3 under the multiemployer pension and welfare plans, since he didn’t want them to lose their retirement – so long as he had no other obligation under the plan. THEY AGREED.
Both Parties Signed Benefit Plan Agreements:
- The collective bargaining agreement that the parties signed specifically said that all “drivers, helpers, dockmen, warehousemen, checkers, powerlift operators, etc., were represented by the union”, AND
- The participation agreement said that fixed sums needed to be contributed each week to the multiemployer plan for EACH “driver.”
The parties continued pursuant to their own agreement, with Gerber only contributing for Fat’s 3 until 1982, when Gerber merely stated it would no longer participate in collective bargaining, and the Union accepted. In 1984 they sent the plan a notice saying they would stop paying.
When Fat’s 3 retired, and sought their money, the plans noticed the problems and audited Gerber, finding that they had 18 employees no contributions were made for. The plans sought those payments under ERISA, and Gerber refused.

Issue:

Whether, when an employer and union submit to pension fund documents on behalf of all employees, understandings and practices that would prevent the enforcement of the writings between employer and union also defeat the fund’s claims.
Whether termination of participation in a fund is valid when notice is not given in writing.
Whether the fund is entitled to liquidated damages and attorney’s fees, in addition to the fund payments, pursuant to ERISA § 502(g)(2).

Procedural Result:

District court reversed in favor of the funds. Remanded to determine whether all employees or just drivers are included in the plan.

Holding:

When an employer and union submit to pension fund documents on behalf of all employees, understandings and practices that would prevent the enforcement of the writings between employer and union DO NOT defeat the fund’s claims, as ERISA § 515 governs, instead of general contract law, and it states that an executed promise to pay a fund cannot be reneged upon due to policy reasons, like creating chaos through underfunding of retirement plans.
Termination of participation in a fund is only valid when notice is given in writing, so termination did not occur here until 1985, and Gerber is responsible for all those contributions.
Also, the fund is entitled to liquidated damages and attorney’s fees, in addition to the fund payments, pursuant to ERISA § 502(g)(2).

Reasoning:

ERISA § 515: “Every employer who is obligated to make contributions to a multiemployer plan under the terms of a plan or collective bargaining agreement shall, to the extent not inconsistent with the law, make such contributions in accordance with the terms and conditions of such plan or agreement.”
“To the extent not inconsistent with the law” is the problematic language, since under basic contract law, the fund’s requests would not be valid, since there was no intent to contract by the parties for what the fund seeks.

HOWEVER:

In multiemployer plans, if some employers do not pay, the other plans have to make up the difference through higher contributions, or give the workers less than promised.
- Trusts have an independent obligation to workers, and the funds cannot be allowed to default.
ERISA’s legislative history makes it clear that the parties should not be allowed to back out of the agreements they signed: “Costs of litigation detract from the ability of plans to formulate or meet funding standards…[so] Federal pension law must permit trustees of plans to recover delinquent contributions efficaciously, and without regard for issues that might arise under labor-management relations law. Sound national pension policy demands that employers who enter into agreements providing for pension contributions not be permitted to repudiate their pension promises.”
Multiemployer Plan Funding Rules:
- If the employer points out a defect in formation of the plan (like fraud or oral promises to disregard the text), it must still keep its promise to the pension plans.
- Pension plans believe that their obligations to employees stem from the terms of the participation agreements, and that employers’ failure to fulfill their promises is irrelevant.
Here, ERISA § 515 prevents a court from giving force to oral understandings between unions and employers that contradict the writings.

Concurring and Dissenting in part:

Enforcement of this holding is impossible, as it is to tough.
ERISA does not repeal basic contract law.
Gerber lived up to his commitment, but was punished anyway.
ALL rules must admit for equitable exception and modification in appropriate cases, so the “tyrrany of theory over reality [does not] bring about obnoxious results.”

Metropolitan Life Insurance Co. v. Massachusetts (US 1985):

Statement of the Case:

Attorney General of MA brought suit for declaratory and injunctive relief against Metropolitan for selling life insurance in MA to health benefit plans which does not provide mental health coverage, when Metropolitan contends that the law does not apply, since ERISA states that it preempts all State law “relating to any employee benefit plans” (§ 514(a)), but the Attorney General contends that it does not preempt the State law, since it provides for an “insurance saving clause (the “Deemer Clause”)” that states ERISA “shall not be construed to exempt or relieve any person from any State law that regulates insurance, banking, or securities” (§ 514(b)(2)(A)).

Procedure:

MA Supreme Court ruled that the § was saved from ERISA preemption as a law regulating insurance.

Facts:

See above.

Issue:

Whether a State statute that requires insurance companies to provide mental health insurance when selling their insurance to health care plans in the State is preempted by ERISA, since ERISA states that it preempts all State law “relating to any employee benefit plans” (§ 514(a)), but provides for an “insurance saving clause (the “Deemer Clause”)” that states ERISA “shall not be construed to exempt or relieve any person from any State law that regulates insurance, banking, or securities” (§ 514(b)(2)(A)).

Procedural Result:

Judgment affirmed for Attorney General.

Holding:

A State statute that requires insurance companies to provide mental health insurance when selling their insurance to health care plans in the State is NOT preempted by ERISA, since ERISA states that it preempts all State law “relating to any employee benefit plans” (§ 514(a)), but provides for an “insurance saving clause (the “Deemer Clause”)” that states ERISA “shall not be construed to exempt or relieve any person from any State law that regulates insurance, banking, or securities” (§ 514(b)(2)(A)). If a state law “regulates insurance,” as mandated benefit laws do, it is not preempted.

Reasoning:

Reason for the statute was to address a threat the MA legislature saw in MA.
Mandated Benefit Statutes regarding insurance have existed in all 50 states for 30 years.
ERISA § 3(1): Plans may self-insure or purchase insurance for their participants (these are “Insured Plans”).
- ERISA does not regulate the substantive content of welfare benefit plans.
- ERISA states that it preempts all State law “relating to any employee benefit plans” (§ 514(a)), but provides for an “insurance saving clause (the “Deemer Clause”)” that states ERISA “shall not be construed to exempt or relieve any person from any State law that regulates insurance, banking, or securities” (§ 514(b)(2)(A)).
Preemption may be either express or implied, and the term “RELATE TO” welfare plans was given broad meaning.
Nonetheless, the insurance saving clause still applies.
- We must presume that congress did not want to regulate areas of traditional state regulation.
- Presumption is against preemption, and we are not inclined to read limitations into federal statutes.
- Mandated benefit laws ARE TRADITIONAL insurance laws.
Whether a Particular Practice Falls within the “Business of Insurance”:
- 1^st: Whether the practice has the effect of transferring or spreading a policyholder’s risk.
- 2^nd: Whether the practice is an integral part of the policy relationship between the insurer and insured.
- 3^rd: Whether the practice is limited to entities within the insurance industry.
All of these are met, so this is an insurance regulation.
If a state law “regulates insurance,” as mandated benefit laws do, it is not preempted.

FMC Corp. v. Holliday (US 1990):

Statement of the Case:

FMC, health care provider, sought declaratory judgment when the daughter of insured was injured in a car accident, the father/plan participant won recovery, FMC’s plan had a subrogation clause requiring reimbursement for the benefits paid when there is a claim recovery against a 3^rd party, but there is a PA law making insurance subrogation clauses by a health care plan illegal. FMC claimed that ERISA preempted the PA law.

Procedure:

District Court and Court of Appeal granted the family’s MSJ.

Facts:

FMC operates a self-insured ERISA health care plan.
It has a subrogation clause requiring reimbursement for the benefits paid when there is a claim recovery against a 3^rd party, but there is a PA law making insurance subrogation clauses by a health care plan illegal.
Daughter of insured was injured in a car accident, the father/plan participant won recovery, and FMC claimed the right to reimbursement.

Issue:

Whether ERISA preempts a PA State law precluding employee welfare benefit plans from exercising insurance-type subrogation rights on a claimant’s tort recovery when the plan is self-insured.

Procedural Result:

Judgment reversed for the insurance company.

Holding:

ERISA does not preempt a PA State law precluding employee welfare benefit plans from exercising insurance-type subrogation rights on a claimant’s tort recovery when the plan is self-insured, since a self insured plan falls under the Deemer Clause, specifically because ERISA states that a State law cannot regulate a health care plan by “deeming it” to really be an insurance provider.

Reasoning:

Summary of Preemption Law Under ERISA:
- ERISA § 514(a): Preemption Law establishes an area of exclusive federal concern for every state law that “relates to” an employee benefit plan governed by ERISA.
- ERISA § 514(b)(2)(A): Savings Clause returns to the State the power to enforce those state laws that “regulate insurance,” except for the deemer clause.
- ERISA § 514(b)(2)(B)): Deemer Clause states that an employee benefit plan under ERISA shall not be “deemed” an insurance company, insurer, or engaged in the business of insurance for purposes of state laws “purporting to regulate” insurance companies or insurance contracts.
This state law meets the preemption law, then the savings clause, but also falls under the DEEMER CLAUSE.
- 1) State laws directed towards the Employee Benefit Plans are preempted because they relate to an employee benefit plan, and are not “saved” because they do not regulate insurance.
- 2) Employee Benefit Plans that are insured are subject to indirect state insurance regulation.
Dissent (Stevens):
- Court’s construction of the § draws a line that Congress would have made if it really wanted it in there.
- If Congress wanted this, they could have made the distinction, and not have had a “savings clause.”

American Medical Security, Inc. v. Bartlett (4^th Cir. 1997):

Statement of the Case:

Maryland employers, their Stop-Loss Insurance Company, and the Plan Administrator field for declaratory judgment that a Maryland law stating that the minimum attachment point for stop-loss insurance plans would be $10,000 violated ERISA, since the law’s stated purpose was to impose the state’s mandated health benefits on self-funded ERISA plans when they purchase certain types of stop-loss insurance that were the equivalent of making them insured health care plans (which would fall under ERISA).

Procedure:

District court granted SMJ for the Insurance Company and plan providers.

Facts:

MD employers that sponsor self-insured employee health benefit plans purchased stop-loss incurance from United Wisconsin Life, and hired AMS to administrate their plans.
The MD State § requires 28 mandated benefits, and the self-insured plans did not provide all of these, but weren’t required to under ERISA.
The Stop-Loss Insurance companies cut a deal with the employers’ plans so that the attachment point could be dropped really low.
MD then, frustrated, created a law stating that the minimum attachment point for stop-loss insurance plans would be $10,000.

Issue:

Whether ERISA preempts a MD insurance regulation that fixes the minimum attachment point for a Stop-Loss Insurance policy issued to self-funded employee benefit plans covered by ERISA, when the regulation is designed to prevent insurers and self-funded employee benefit plans from depriving plan participants and beneficiaries of state mandated health benefits.

Procedural Result:

Judgment affirmed for the plan providers and insurance companies.

Holding:

ERISA preempts an insurance regulation that fixes the minimum attachment point for a Stop-Loss Insurance policy issued to self-funded employee benefit plans covered by ERISA, specifically because the regulation is designed to prevent insurers and self-funded employee benefit plans from depriving plan participants and beneficiaries of state mandated health benefits by imposing the state’s mandated health benefits on self-funded ERISA plans when they purchase certain types of stop-loss insurance, thus violating the DEEMER CLAUSE.

Reasoning:

Stop-Loss Insurance provides protection to the plan itself, not the participants or beneficiaries, for claims that go past the attachment point.
- Specific Attachment Points – define the level of benefits paid to individual beneficiaries beyond which the insurance company will indemnify the plan.
- Aggregate Attachment Points – define the total amount of benefits paid to all participants or beneficiaries beyond which the insurance company will indemnify the plan.
By absorbing the risks involved with using Stop-Loss Insurance, the plans are allowed to circumvent the State health benefit requirements.
Here, the complications of the 2^nd and 3^rd Metropolitan Life Test factors, together with the DEEMER CLAUSE provide for the holding that the State’s regulation of stop-loss insurance should be barred by ERISA.
- While the state’s fear is udnderstandable, this is an area for Congress to change.
The State’s argument is flawed because:
- It overlooks the risks of liability if the stop-loss insurance company becomes involvement still assumed by the employer, OR
- The fact that unless the employer can pay up to the attachment point, the insurance company will not pay its part.

Additional Points:

“Lasering” Individual Health Care Plan Participants under Stop-Loss Policies:

Lasering: Technique used by the insurance issuer policies to reduce the cost of coverage for high risk participants, by the carrier carving out an exception to the employer’s coverage for that particular person.
- Employer must pay this person’s bills alone.
- Person must be charged the same premium by the employer, under ERISA § 702.

Regulation of Multiple Employer Welfare Benefit Plans (MEWAs) Under State Insurance Laws and ERISA:

MEWA: An employee welfare benefit plan for more than one employer.
- Different from multiemployer plan because there is no collective bargaining agreement.
- Often used by industry trade associations to offer health care, but the plans often collapse.
- ERISA § 516(b)(6) creates preemption rules for these:
  - If fully insured, the MEWA is only governed by state insurance laws that govern financial standards.
  - If not fully insured, the plan is subject to ERISA Title I and applicable state insurance laws that are consistent with ERISA.

Holford v. Exhibit Design Consultants (MI USDC 2002):

Statement of the Case:

Holford, terminated plan participant, seeks actual and statutory damages, and legal fees, alleging that her Company violated ERISA § 606 by failing to provide her with written notice of her right to continue health coverage upon termination of her employment under COBRA, since the notice was only in the Employee Handbook.

Issue:

Whether a terminated employee’s Company violated ERISA § 606 by failing to provide her with written notice of her right to continue health coverage upon termination of her employment under COBRA, since the notice was only in the Employee Handbook.

Procedural Result:

Judgment for the Participant.

Holding:

Terminated Employee’s Company violated ERISA § 606 by failing to provide her with written notice of her right to continue health coverage upon termination of her employment under COBRA, since the notice was only in the Employee Handbook, thus entitling her to actual damage payment of medical expenses, punitive statutory damages, and attorney’s fees.

Reasoning:

COBRA Litigation Rules:
- Notification requirements of COBRA are clear that an employer must notify plan administrator of a termination within 30 days (606(a)(2)).
- Administrator then has 14 days to notify the beneficiary of her right to continue coverage under COBRA, and the participant has 60 days to accept (606(a)(4)).
- Notice Under COBRA:
  - § gives no direction on what constitutes notice.
  - Mailed notice to the employee’s last known address is deemed “Good Faith Compliance” with COBRA’s notification requirement.
Defendant’s claims that this is a