Social Security Database Relating to Private Pension Benefits

Did you know that the Social Security Administration keeps a database of individuals who have been identified by the Internal Revenue Service as having qualified for pension benefits under private retirement plans? The database is maintained by SSA pursuant to…

Did you know that the Social Security Administration keeps a database of individuals who have been identified by the Internal Revenue Service as having qualified for pension benefits under private retirement plans? The database is maintained by SSA pursuant to the requirements of ERISA. You can access information about the database here.

Sixth Circuit Case Illustrates How Plan Overpayments Can Be Difficult to Correct

A recent Sixth Circuit case-Ramsey v. Formica Corp.-illustrates how painful it can be to unravel errors made by plan administrators in making payments to retirees. The saga in this case apparently began with an audit of the pension plan in…

A recent Sixth Circuit case–Ramsey v. Formica Corp.–illustrates how painful it can be to unravel errors made by plan administrators in making payments to retirees. The saga in this case apparently began with an audit of the pension plan in question which revealed that certain retirees had, for a period of between eight and seventeen years, been receiving monthly amounts which exceeded what they were entitled to under the plan. The audit found that 440 of the 624 retirees in its defined pension plan dating from 1985 were receiving incorrect benefits. In January of 2004, the company, which was emerging from Chapter 11 bankruptcy reorganization, found that 295 retirees received overpayments totaling about $1 million and another 145 retirees had been underpaid a total of about $500,000. The Company entered into a Voluntary Compliance Program with the Internal Revenue Service and began correcting the benefit payment mistakes.

While the plan made up the underpaid amounts, it also reduced the payments of those who were overpaid, and indicated that it might have to recover certain additional overpayment amounts from retirees. Here’s what happened next:

To maintain their monthly payments notwithstanding the audit findings, plaintiffs filed an action in state court alleging claims of negligent misrepresentation and promissory estoppel. Contemporaneously, plaintiffs filed a motion for a temporary restraining order to enjoin Formica from reducing its monthly benefit payments. The same day, Formica filed a notice of removal, arguing that plaintiffs’ complaint stated claims under the Employee Retirement Income Security Act for breach of fiduciary duty. The district court accepted jurisdiction pursuant to 29 U.S.C. §1132(a)(3), and held a conference that afternoon to establish a briefing schedule and a hearing date for oral argument with regard to plaintiffs’ motion for a temporary restraining order. The next day, Formica amended its notice of removal to argue that plaintiffs seek “to recover pension benefits” and, therefore, that plaintiffs’ state law claims are entirely preempted by the Act. Plaintiffs then amended their complaint to add claims for breach of fiduciary duty and equitable relief under the Act and to name as additional defendants the fiduciaries of Formica’s Employee Retirement Plan.

The district court denied the motion for a temporary restraining order and the Sixth Circuit affirmed, holding that the form of relief was not authorized under ERISA. The Court, relying on Mertens and Great-West held that here, where the plaintiffs were asking for the Court to direct the plan to pay monies which were not owed for an uncertain duration, that the relief sought did not fall under the “categories of relief that were typically available in equity” and, therefore, were not authorized by ERISA.

One of the alternatives suggested by the plaintiffs was that the company (rather than the plan) should continue paying the unreduced amounts to the retirees, but the Court affirmed the district court’s ruling that such state law claims were tied to the incorrect processing of the pension payments and thus were entirely preempted by ERISA.

Also, an interesting aspect of the case was a statement by the Court that at various times the company had allegedly “solicited substantial groups of employees to take early retirement” and had “presented each employee with proposed early retirement kits” which had included “pre-prepared documents describing the incentive for early retirement as well as individualized estimates detailing what the specific retiree could expect in benefits each month.” According to the Court, the plaintiffs had chosen to retire early and had received the amounts that were represented to them by the “early retirement solicitation.”

Sixth Circuit Case Illustrates How Plan Overpayments Can Be Difficult to Correct

A recent Sixth Circuit case-Ramsey v. Formica Corp.-illustrates how painful it can be to unravel errors made by plan administrators in making payments to retirees. The saga in this case apparently began with an audit of the pension plan in…

A recent Sixth Circuit case–Ramsey v. Formica Corp.–illustrates how painful it can be to unravel errors made by plan administrators in making payments to retirees. The saga in this case apparently began with an audit of the pension plan in question which revealed that certain retirees had, for a period of between eight and seventeen years, been receiving monthly amounts which exceeded what they were entitled to under the plan. The audit found that 440 of the 624 retirees in its defined pension plan dating from 1985 were receiving incorrect benefits. In January of 2004, the company, which was emerging from Chapter 11 bankruptcy reorganization, found that 295 retirees received overpayments totaling about $1 million and another 145 retirees had been underpaid a total of about $500,000. The Company entered into a Voluntary Compliance Program with the Internal Revenue Service and began correcting the benefit payment mistakes.

While the plan made up the underpaid amounts, it also reduced the payments of those who were overpaid, and indicated that it might have to recover certain additional overpayment amounts from retirees. Here’s what happened next:

To maintain their monthly payments notwithstanding the audit findings, plaintiffs filed an action in state court alleging claims of negligent misrepresentation and promissory estoppel. Contemporaneously, plaintiffs filed a motion for a temporary restraining order to enjoin Formica from reducing its monthly benefit payments. The same day, Formica filed a notice of removal, arguing that plaintiffs’ complaint stated claims under the Employee Retirement Income Security Act for breach of fiduciary duty. The district court accepted jurisdiction pursuant to 29 U.S.C. §1132(a)(3), and held a conference that afternoon to establish a briefing schedule and a hearing date for oral argument with regard to plaintiffs’ motion for a temporary restraining order. The next day, Formica amended its notice of removal to argue that plaintiffs seek “to recover pension benefits” and, therefore, that plaintiffs’ state law claims are entirely preempted by the Act. Plaintiffs then amended their complaint to add claims for breach of fiduciary duty and equitable relief under the Act and to name as additional defendants the fiduciaries of Formica’s Employee Retirement Plan.

The district court denied the motion for a temporary restraining order and the Sixth Circuit affirmed, holding that the form of relief was not authorized under ERISA. The Court, relying on Mertens and Great-West held that here, where the plaintiffs were asking for the Court to direct the plan to pay monies which were not owed for an uncertain duration, that the relief sought did not fall under the “categories of relief that were typically available in equity” and, therefore, were not authorized by ERISA.

One of the alternatives suggested by the plaintiffs was that the company (rather than the plan) should continue paying the unreduced amounts to the retirees, but the Court affirmed the district court’s ruling that such state law claims were tied to the incorrect processing of the pension payments and thus were entirely preempted by ERISA.

Also, an interesting aspect of the case was a statement by the Court that at various times the company had allegedly “solicited substantial groups of employees to take early retirement” and had “presented each employee with proposed early retirement kits” which had included “pre-prepared documents describing the incentive for early retirement as well as individualized estimates detailing what the specific retiree could expect in benefits each month.” According to the Court, the plaintiffs had chosen to retire early and had received the amounts that were represented to them by the “early retirement solicitation.”

New HR Law Blog

The Greater Valley Forge Human Resource Association has launched a new blog here. The aim of the blog is to track legal developments of interest to HR professionals, consultants, and advisers. Kristen Carey (of Montgomery, McCracken, Walker & Rhoads, LLP)…

The Greater Valley Forge Human Resource Association has launched a new blog here. The aim of the blog is to track legal developments of interest to HR professionals, consultants, and advisers. Kristen Carey (of Montgomery, McCracken, Walker & Rhoads, LLP) and I are currently posting to the blog.

New Federal Tax Reform Website

Thanks to RothCPA.com for the link to the new Federal Tax Reform website. Excerpt from the press release: “The President has tasked our Panel with developing reforms to make the tax code simpler, fairer and more growth oriented. I look…

Thanks to RothCPA.com for the link to the new Federal Tax Reform website. Excerpt from the press release:

“The President has tasked our Panel with developing reforms to make the tax code simpler, fairer and more growth oriented. I look forward to the opportunity to hear from Secretary Snow as well as this distinguished group of experts as we begin the process of examining the problem and formulating solutions,” Senator Mack stated.

“The current tax system is an unfair burden on Americans,” added Senator Breaux. “When it takes the average taxpayer 11 hours to fill out the short tax form, something is wrong. This is a unique opportunity to work in a bipartisan effort and find ways to make the tax system serve Americans better.”

Want to be involved in the process? You can submit written comments by snail mail, or attend meetings which begin February 16th as discussed here. Or, you could start a blog . . .

Trend in Online Insurance Bidding?

The highly publicized insurance industry investigations have spawned concern over how employers can meet their ERISA obligations when it comes to maintaining life and disability programs for their employees. (Read about the ERISA implications of the investigations in this previous…

The highly publicized insurance industry investigations have spawned concern over how employers can meet their ERISA obligations when it comes to maintaining life and disability programs for their employees. (Read about the ERISA implications of the investigations in this previous post–“Action Required by ERISA Fiduciaries in Recent Insurance Probe.”) This article from BenefitNews.com–“Scandals may prompt more online insurance bidding“– indicates that “some consultants are recommending that employers use online bidding for their plan purchases to avoid any hint of impropriety” and that “the software lowers benefit costs” and “adds transparency to the bidding process.”

The article rightly points out that an “employer’s ERISA fiduciary duty demands companies choose benefits on more than price alone.” Before jumping on this bandwagon, an employer should consult with its legal adviser to determine what other “prudent practices and procedures” should be involved in assessing the carriers, in order to make sure that the employer and/or fiduciaries of the plans are meeting their fiduciary obligations under ERISA.

Trend in Online Insurance Bidding?

The highly publicized insurance industry investigations have spawned concern over how employers can meet their ERISA obligations when it comes to maintaining life and disability programs for their employees. (Read about the the ERISA implications of the investigations in this…

The highly publicized insurance industry investigations have spawned concern over how employers can meet their ERISA obligations when it comes to maintaining life and disability programs for their employees. (Read about the the ERISA implications of the investigations in this previous post–“Action Required by ERISA Fiduciaries in Recent Insurance Probe.”) This article from BenefitNews.com–“Scandals may prompt more online insurance bidding“– indicates that “some consultants are recommending that employers use online bidding for their plan purchases to avoid any hint of impropriety” and that “the software lowers benefit costs” and “adds transparency to the bidding process.”

The article rightly points out that an “employer’s ERISA fiduciary duty demands companies choose benefits on more than price alone.” Before jumping on this bandwagon, an employer should consult with its legal adviser to determine what other “prudent practices and procedures” should be involved in assessing the carriers, in order to make sure that the employer and/or fiduciaries of the plans are meeting their fiduciary obligations under ERISA.

Link to the WorldCom Directed Trustee Decision

Something to take home and read over the weekend-here is a link to the recent WorldCom directed trustee decision discussed in this previous post here: In re WorldCom, Inc. ERISA Litigation, 2005 U.S. Dist. LEXIS 1218 (S.D.N.Y. 2005) Also, on…

Something to take home and read over the weekend–here is a link to the recent WorldCom directed trustee decision discussed in this previous post here:

In re WorldCom, Inc. ERISA Litigation, 2005 U.S. Dist. LEXIS 1218 (S.D.N.Y. 2005)

Also, on a related matter, the Wall Street Journal is reporting: “Settlement Accord With Ex-Directors Of WorldCom Fails.” According to the article:

Less than a month after it was announced, an extraordinary agreement by 10 former WorldCom Inc. directors to pay $18 million out of their own pockets to settle a class-action suit has collapsed after the judge rejected a key provision of the deal.

The agreement unraveled as the plaintiffs, led by New York State Comptroller Alan Hevesi, said they are withdrawing from the settlement because U.S. District Judge Denise Cote rejected a provision that relates to how much the remaining defendants in the suit might have to pay if they lose the case.

Link to the WorldCom Directed Trustee Decision

Something to take home and read over the weekend-here is a link to the recent WorldCom directed trustee decision discussed in this previous post here: In re WorldCom, Inc. ERISA Litigation, 2005 U.S. Dist. LEXIS 1218 (S.D.N.Y. 2005) More later….

Something to take home and read over the weekend–here is a link to the recent WorldCom directed trustee decision discussed in this previous post here:

In re WorldCom, Inc. ERISA Litigation, 2005 U.S. Dist. LEXIS 1218 (S.D.N.Y. 2005)

More later. . .