Month: June 2005

From KaiserNetwork.org:

The Wall Street Journal on Wednesday examined patientINFORM, a Web site that will offer free access to medical journal articles on cancer, heart disease and diabetes and “plain-language explanations” of the studies’ implications for patients. The project is a collaboration by the American Cancer Society, the American Diabetes Association and the American Heart Association. Each month, the groups will review hundreds of published studies from more than two dozen journals, and experts will then translate the studies into lay language for consumers, including explanations of the studies’ meaning, how they compare to current knowledge on the issue and how patients should use them in making treatment decisions. According to the Journal, the project comes as “pressure continues to mount” for medical journals to provide the public with better access to research.

The SEC announced today the release of a staff report prepared by the Office of the Chief Accountant, the Office of Economic Analysis and the Division of Corporation Finance on off-balance sheet arrangements, special purpose entities and related issues. The report recommends that “the accounting guidance for defined-benefit pension plans and other post-retirement benefit plans be reconsidered.” The report contains sample data suggesting that a staggering amount of liabilities for retirement plans overall (i.e. including pension and other postretirement benefit plans) remain off-balance sheet. Excerpt from the Report:

Some investors have expressed concerns about the transparency of pension and other postretirement benefit accounting and disclosure. The CFA Institute (formerly the Association for Investment Management and Research or “AIMR”), a nonprofit membership organization for investment professionals, recently commented that, because the pension and other postretirement benefit accounting standard “fails to provide full recognition in the financial statements of the effects on the firm of the pension and postretirement benefit contracts, a huge and very costly burden has been shifted to those for whom the statements are prepared, analysts and other users.” Accordingly, some investors have called for issuers to report actual gains and losses from changes in expected assumptions versus actual plan results by eliminating the smoothing of gains and losses currently allowed under GAAP and to separately recognize pension and other postretirement benefit plan assets and liabilities on the balance sheet. The Staff agrees that, under the current standards, the balance sheet is often not transparent as to the true funded status of pension plans and that additional clarity is necessary.

The Wall Street Journal reports: “SEC Seeks Enhanced Disclosure Of Pension and Lease Obligations.”

FASB’s reponse to the report is here.

Scott Burns, Dallas Morning News personal finance columnist nationally syndicated by Universal Press, has been writing about fiduciary issues in articles which have been published in the Houston Chronicle. This one–“It’s a bird! It’s a plane! It’s a fiduciary adviser!”–features Don Trone, founder of the Center for Fiduciary Studies and likens him to an “action hero for 401(k) plans.”

Another article–“Even large, profitable funds might fail the fiduciary test“–mentions ERISAblog. (Thanks to a reader for the pointer.)

(The Dallas Morning News version of the articles are here and here.)

You can read more articles by Mr. Burns at www.scottburns.com.

There’s a very interesting subrogation opinion just issued by the Eastern District of Pennsylvania: Benefit Concepts v. Carmelann Macera. The facts of the case are as follows:

The plaintiff was an administrator of a self-funded health plan and was also a fiduciary of the plan, and the plan document contained a standard subrogation clause. When the defendant was injured in an automobile accident, she filed suit against the party involved in the automobile accident and the suit was settled for $60,000. The subrogation agent for the plan administrator of the health plan which had paid for part of the defendant’s medical bills incurred in the accident demanded that the defendant reimburse the plan for the medical expenses which the plan had paid. (Before the plan paid the defendant’s medical bills, the defendant had signed a Subrogation Agreement in which she agreed to abide by the plan’s subrogation clause, but the defendant had added language to the effect that the defendant recognized the plan’s claim only “to the extent allowed by Act VI [the Pennsylvania’s Motor Vehicle Financial Responsibility Law (“MVFRL”)] and all other laws regarding payment of reasonable expenses.”)

The plan administrator brought suit seeking to enforce the plan’s subrogation rights and the defendant asserted a counterclaim alleging that the plan administrator breached its fiduciary duties by overpaying her medical providers, arguing that the plan administrator should not have paid the medical bills in full due to section 1797(a) of the MVFRL. That provision provided statutorily specified limitations on how much could be paid to medical providers under the MVFRL.

Preemption Analysis: The court held that section 1797(a) was preempted by ERISA under the “deemer clause” of ERISA because the plan was a self-funded plan. However, before reaching the “deemer clause” analysis, the court first analyzed whether the provision would be “saved” from preemption as a law regulating insurance under the “savings clause” of ERISA, utilizing the two-part test promulgated by the U.S. Supreme Court case of Kentucky Ass’n of Health Plans v. Miller , 538 U.S. 329, 341-42, 123 S. Ct. 1471, 1479 (2003) (read about the Miller case here and here):

For a state law to “regulate insurance,” and thus be saved from preemption, it must (1) “be specifically directed toward entities engaged in insurance”; and (2) “substantially affect the risk pooling arrangement between the insurer and the insured.”

The court went on to hold that the provision met the Miller test, and was thus saved from preemption under the “savings clause.” With respect to the first prong of the test, the court reasoned that Section 1797(a) is specifically directed toward the insurance industry because it was enacted “to reduce the rising cost of purchasing motor vehicle insurance.” With respect to the second prong of the test, the court opined that Section 1797(a) substantially affects the risk pooling arrangement between insurers and their insureds because it limits the rates that medical providers can charge insurers, thus reducing insurers’ actuarial risk and in turn permitting them to pass the cost savings onto the insureds.

However, the court then stated that since the Plan was a self-funded employee benefit plan, “the deemer clause forecloses any possibility that Section 1797(a) could apply”, noting in footnote 8:

To the extent that Section 1797(a) regulates entities other than self-funded employee benefit plans, such as automobile insurance companies, the deemer clause does not apply, and ERISA does not preempt the application of Section 1797(a) to those entities.

Comment: Under the court’s analysis, it would appear that fully insured health plans would also likely be included as entities which would be subject to section 1797(a) of the MVFRL which leads to this query: How would the court have ruled on the fiduciary breach issue if the plan had not been self-funded? (The court did not reach a decision on that issue since the provision was preempted under the “deemer clause.”) Could fiduciaries of insured health plans be deemed personally liable for failure to comply with section 1797(a) of the MVFRL?

Read more about the case in this article from Law.com: “ERISA Found to Pre-empt Motor Vehicle Law’s Medical Caps.”

Also, remember the U.S. Supreme Court case of FMC Corporation v. Cynthia Ann Holliday, 498 U.S. 52, 111 S. Ct. 403, 112 L.Ed. 356 (1990), which held that ERISA preempted the application of section 1720 of Pennsylvania’s MVFRL under a pre-Miller analysis.

Read more about the complex world of ERISA subrogation in previous posts here.

Some employers may want to delay implementing the grace period for flexible spending account plans (mentioned in this previous post here) until the uncertainties regarding how the grace period might impact health savings account are resolved. You can read about the issue in the following articles:

• From Hewitt: “New FSA Extension Creates Issue for HSA Participants”
• From Spencer Benefits Reports: “Sec. 125 Grace Period May Create Roadblock For HSA Participation”

The Hewitt article indicates that the “Treasury hopes to issue formal guidance allowing an individual waiver or other solution” but states that the “timing of the guidance, the specific solution, and its associated administrative implications are currently uncertain.”

See also this article from Trucker Huss which points out an administrative difficulty for implementation of the new rule under an FSA that has been amended to provide for the grace period and which also utilizes debit cards: “Section 125 Plan 2½ Month Grace Period: Participants’ Bonus and Administrators’ Bane.”

Benefitsblog will not be updated again until next week (June 13th).

Can a plan fiduciary who has been deemed liable under a plan seek either contribution or indemnification from a co-fiduciary of the plan under ERISA? The question was thoroughly discussed in the recent Opinion and Order issued by the federal district court in Houston approving the $85 million partial settlement on behalf of the Enron participants. The Court pointed out that there is no express right to contribution or indemnity under ERISA in contrast with securities laws where there is an express right. (See fn. 15 of the opinion.) However, after discussing how the federal Circuit Courts of Appeals and the district courts that have addressed the issue are split, the Court then adopted the Ninth Circuit view, stating as follows:

After reviewing the law, this Court is persuaded by the reasoning of courts agreeing with the Ninth Circuit’s approach and by the Supreme Court’s consistent reiteration of the exclusivity of the express remedies available under ERISA’s civil enforcement section, and concludes that a remedy for indemnification or contribution among plan fiduciaries is not available under ERISA.

The Court agreed with the view that ERISA is a “comprehensive and intricate statute into which Congress could have injected provisions for indemnification or contribution among fiduciaries but chose not to” and went on to state that “ERISA’s silence about contribution indicates an intent not to recognize remedies not expressly incorporated.”

For those who want to delve further into the issue, try:

ERISA Remedies: Background Materials and Update by Maria O’Brien Hylton and Dana M. Muir (from BNA.com).

Fiduciary Litigation under ERISA by Robert Eccles (also from BNA.com).