Formal Denial Of Benefits Unnecessary For Accrual of ERISA Benefits Claim

To hold that an insured cannot bring an action until an insurer formally denies the claim for benefits would, as the district court noted, allow insurers to “prevent policy holders from suing by continuing in perpetuity to consider the claims open and the denial of benefits preliminary.” Curry, 2013 U.S. Dist. LEXIS 98791, 2013 WL 3716413, at *3 n.5. This cannot be so.

Therefore, we conclude that Curry’s cause of action for breach of contract arose–and the statute of limitations began to run–when Trustmark terminated Curry’s monthly benefit payments on June 30, 2008.n5 As a result, his suit, filed on July 27, 2011, falls outside the limitations period.n6

Curry v. Trustmark Ins. Co., 2015 U.S. App. LEXIS 1910 (4th Cir. Md. Feb. 6, 2015) (unpublished)

One of the frequently litigated issues in claims for benefit cases is the matter of when the case must be filed.  The issue sounds simple enough but the case law suggests otherwise.

Take the opinion in Curry v. Trustmark for example.

Curry alleged that because his back injury rendered him disabled under his disability insurance policy, he was owed benefits under his disability policy.   The carrier had required continuing proof of loss and after some period of controversy, which included a denial, resumption and another denial of benefits, the matter ultimately ended up in court.

The district court held that Trustmark “breached the contract each time [it] failed to pay benefits for a period during which [Curry] was disabled.”  On this view, each failure to pay monthly benefits was a separate and independent breach so that part of Curry’s claim remained timely.  (Nonetheless, on the portion of Curry’s action that fell within the limitations period, the district court ruled against Curry on the merits.)

Judgment affirmed

The Fourth Circuit affirmed the judgment in an unpublished opinion.   Contrary to the district court, however, the Court found the entire case time-barred.

The policy does not provide Curry an unconditional right to receive benefits in perpetuity; rather, his receipt of benefits is subject, to his providing adequate continuing proof of loss. Trustmark has maintained that it did not owe Curry additional benefits because he failed to provide this continuing proof of loss. Therefore, because the alleged breach arose from Trustmark’s denial that it owed Curry benefits at all, no installment contract exists, and the continuing breach theory is not applicable.

Note:  The opinion collects some authorities which may be useful in other circuits.

10th & 11th Circuits - ”In the insurance context, both the Tenth and Eleventh Circuits have rejected the idea that disability policies are installment contracts giving rise to continuing breaches for each unpaid monthly benefit. See Lang v. Aetna Life Ins. Co., 196 F.3d 1102, 1105 (10th Cir. 1999) (borrowing Utah law to determine the statute of limitations under ERISA and holding that characterizing disability policies as installment contracts would “undermine the overriding purpose of a statute of limitation”); Dinerstein v. Paul Revere Life Ins. Co., 173 F.3d 826, 828 (11th Cir. 1999) (applying Florida law and holding that the cause of action at hand was not for a debt “payable by installments” but rather sought “to define the rights and obligations of the parties under the original insurance contract”).”

 Contrary Authorities –   “Some courts have reached the opposite conclusion, treating a disability insurer’s failure to pay benefits as a breach of an installment contract, and therefore concluding that the statute of limitations runs separately as to each missed payment. See, e.g., Pierce v. Met. Life Ins. Co., 307 F. Supp. 2d 325, 330 (D.N.H. 2004) (collecting cases).

However, the Ninth Circuit has distinguished between the “denial of a basic entitlement to benefits on the one hand, and the denial of an entitlement to recover a particular periodic installment on the other.” Wetzel v. Lou Ehlers Cadillac Grp. Long Term Disability Ins. Program, 222 F.3d 643, 650 (9th Cir. 2000) (applying California law). In the context of a pension plan’s refusal to pay benefits, Wetzel instructs that the right to receive periodic pension benefits is a “continuing one” that would give rise to an installment contract; however, such a duty does not exist where the right to receive the pension itself has not first been established. See id.”

Practice Pointer - Counsel should consider any cessation or notice of cessation of benefits as potentially constituting the accrual of a cause of action.  Since the claimant must exhaust administrative remedies with rare exception, early analysis of the applicable law and relevant limitations period is always advisable.

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Obama administration budget proposals could affect employee benefit programs

The Obama administration recently released its budget proposals for Fiscal Year 2015 and as in past years those proposals contained a number of provisions that would affect employee benefit plans. A helpful explanation of the administration’s proposals can be found in theAdministration’s Fiscal Year 2016 Revenue Proposals (sometimes referred to as the “Green Book”), which was issued by the Department of the Treasury.

A brief explanation of provisions contained in the proposed budget that affect employer benefit plans (directly or indirectly) are as follows:

1.    Revisions to child care tax incentives. Effective for taxable years beginning after December 31, 2015, this proposal would increase the child and dependent care credit, and create a larger credit for taxpayers with children under age five. Related to these changes, the proposal would repeal dependent care flexible spending accounts and thus require changes to many employer-sponsored cafeteria plans.

2.    Revisions to Tax Credit to Qualified Small Employers for Non-Elective Contributions to Health Insurance. The Affordable Care Act created a tax credit to help small employers provide health insurance for employees and their families. Without going into the mechanics of that credit, the proposal would expand the group of employers eligible for the credit to include employers with up to 50 full-time equivalent employees and would begin the phase-out of the credit at 20 full-time equivalent employees. In addition, the proposal would change the coordination of the phase-outs based on average wage and the number of employees so as to provide a more gradual combined phase-out. The proposal also would eliminate the requirement that an employer make a uniform contribution on behalf of each employee (although nondiscrimination laws still will apply). These proposals would be effective for taxable years beginning after December 31, 2014.

3.    Automatic Enrollment in IRA’s (Including Small Employer Tax Credit), Increase Tax Credit for Small Employer Plan Start-Up Costs, and Provide Additional Tax Credit for Small Employer Plans Newly Offering Auto-Enrollment. The proposal would require employers in business for at least two years that have more than ten employees but do not sponsor a qualified retirement plan, SEP, or SIMPLE for their employees to offer an automatic IRA option to those employees, under which regular contributions would be made to an IRA on a payroll-deduction basis. However, if the qualified plan excluded from eligibility a portion of the employer’s work force or a class of employees such as all employees of a subsidiary or division, then the employer would be required to offer the automatic IRA option to those excluded employees. An opt-out feature would be available to employees. Employees could choose either a traditional IRA or a Roth IRA, with Roth being the default.

Contributions by employees to automatic IRAs would qualify for the saver’s credit to the extent the contributor and the contributions otherwise qualified. Small employers (those that have no more than 100 employees) that offer an automatic IRA arrangement could claim a temporary non-refundable tax credit up to $1,000 per year for three years, and they would be entitled to an additional non-refundable credit of $25 per enrolled employee up to $250 per year for six years.

To encourage employers not currently sponsoring a qualified retirement plan, SEP, or SIMPLE to do so, the non-refundable “start-up costs” tax credit for a small employer that adopts a new qualified retirement plan, SEP, or SIMPLE would be tripled from the current maximum of $500 per year for three years to a maximum of $1,500 per year for three years and extended to four years (rather than three) for any employer that adopts a new qualified retirement plan, SEP, or SIMPLE during the three years beginning when it first offers (or first is required to offer) an automatic IRA arrangement. Finally, small employers would be allowed a credit of $500 per year for up to three years for new plans that include auto enrollment (which would be in addition to the “start-up costs” credit referenced just above). Small employers also would be allowed a credit of $500 per year for up to three years if they added auto enrollment as a feature to an existing plan.

These proposals would become effective after December 31, 2016.

4.    Expand Penalty-Free Withdrawals for Long-Term Unemployed. This proposal would expand the exception from the 10-percent additional tax to cover certain distributions to long-term unemployed individuals from IRAs and from 401(k) or other tax-qualified defined contribution plans. An individual would be eligible for this expanded exception with respect to distributions if (1) the individual has been unemployed for more than 26 weeks by reason of a separation from employment and has received unemployment compensation for that period (or, if less, for the maximum period for which unemployment compensation is available to the individual), (2) the distribution is made during the taxable year in which the unemployment compensation is paid or in the succeeding taxable year, and (3) the aggregate of all such distributions does not exceed the annual limits described below.

To be eligible for the exception, the aggregate of all such distributions received by an eligible individual from IRAs with respect to the separation from employment generally may not exceed half of the aggregate fair market value of the individual’s IRA and the aggregate of all such distributions received by the eligible individual from 401(k) or other tax-qualified defined contributions plans with respect to the separation from employment may not exceed half of the aggregate fair market value of the individual’s non-forfeitable accrued benefits under those plans as of the date of the first distribution. A special rule exempts the first $10,000 of otherwise eligible distributions (even if that is greater than half of the aggregate fair market value of the individual’s IRAs or non-forfeitable defined contribution plan benefits). Eligible distributions with respect to any separation from employment would be limited to a maximum of $50,000 per year during each of the two years when distributions would be permitted under this exception (for a total of $100,000 with respect to any single period of long-term unemployment).

This proposal would apply to eligible distributions occurring after December 31, 2015.

5.     Require Retirement Plans to Allow Long-Term Part-Time Workers to Participate. This proposal would require 401(k) plans to make employees who have worked at least 500 hours per year for at least three consecutive years eligible to make salary reduction contributions. This proposal would not apply to the eligibility to receive employer contributions, including employer matching contributions. The proposal also would require a plan to credit, for each year in which such an employee worked at least 500 hours, a year of service for purposes of vesting in any employer contributions. With respect to employees newly covered under the proposed change, employers would receive nondiscrimination testing relief, including permission to exclude these employees from top-heavy vesting and top-heavy benefit requirements. This proposal would apply to plan years beginning after December 31, 2015.

6.     Facilitate Annuity Portability. A section 401(k) plan generally cannot distribute amounts attributable to an employee’s elective contributions before (a) the employee’s death, disability, severance from employment, attainment of age 59½, or hardship or (b) termination of the plan. In addition, and subject to certain exceptions, distributions from a qualified retirement plan are subject to a 10-percent withdrawal penalty. The proposal would permit a plan to allow participants to take a distribution of a lifetime income investment through a direct rollover to an IRA or other retirement plan if the annuity investment no longer can be held under the plan, without regard to whether another event permitting a distribution has occurred. Any such distribution would not be subject to the 10-percent withdrawal penalty. This proposal would be effective for plan years beginning after December 31, 2015.

7.     Simplify Minimum Required Distributions Rules. The proposal would exempt an individual from the minimum required distribution rules if the aggregate value of the individual’s IRA and tax-favored retirement plan accumulations does not exceed $100,000 (indexed for inflation after 2016). For this purpose, benefits under qualified defined benefit pension plans that have already begun to be paid in life annuity form would be excluded in determining the dollar amount of the accumulations. The minimum required distribution rules would phase in ratably for individuals with aggregate retirement benefits between $100,000 and $110,000. This proposal would be effective for taxpayers attaining age 70½ on or after December 31, 2015 and for taxpayers who die on or after December 31, 2015 before attaining age 70½.

8.     Allow All Inherited Plan and IRA Balances to be Rolled over Within 60 Days. The proposal would expand the options available to a surviving non-spouse beneficiary under a tax-favored employer retirement plan or IRA for moving inherited plan or IRA assets to a non-spousal inherited IRA by allowing 60-day rollovers of such assets. This treatment would be available only if the beneficiary informs the new IRA provider that the IRA is being established as an inherited IRA. This proposal would be effective for distributions made after December 31, 2015.

9.     Require Non-Spouse Beneficiaries of Deceased IRA Owners and Retirement Plan Participants to Take Inherited Distributions Over No More than Five Years. Under the proposal, non-spouse beneficiaries with respect to retirement plans and IRAs generally would be required to take distributions over no more than five years. Exceptions would be provided for certain eligible beneficiaries, for whom distributions would be allowed over the life or life expectancy of the beneficiary beginning in the year following the year of the death of the participant or owner. Special rules would apply to distributions to children who have not reached the age of majority. Any balance remaining after the death of a beneficiary (including any beneficiary excepted from the five-year rule or a spouse beneficiary) would be required to be distributed by the end of the calendar year that includes the fifth anniversary of the beneficiary’s death. The proposal would be effective for distributions with respect to plan participants or IRA owners who die after December 31, 2015. The requirement that any balance remaining after the death of a beneficiary be distributed by the end of the calendar year that includes the fifth anniversary of the beneficiary’s death would apply to participants or IRA owners who die before January 1, 2015, but only if the beneficiary dies after December 31, 2015.

10.     Limit the Total Accrual of Tax-Favored Retirement Benefits. The proposal would prohibit any taxpayer who has accumulated amounts within the tax-favored retirement system (including IRAs, section 401(a) plans, section 403(b) plans, and funded section 457(b) arrangements maintained by governmental entities) in excess of the amount necessary to provide the maximum annuity permitted for a tax-qualified defined benefit plan under current law (currently $210,000) generally would be prohibited from making additional contributions or receiving additional accruals under any of those arrangements. Plan sponsors and IRA trustees would be obligated to report each participant’s account balance as of the end of the year as well as the amount of any contribution to that account for the plan year. If a taxpayer reached the maximum permitted accumulation, no further contributions or accruals would be permitted, but the taxpayer’s account balance could continue to grow with investment earnings and gains. The proposal would be effective with respect to contributions and accruals for taxable years beginning after December 31, 2015.

11.     Limit Roth Conversions to Pre-tax Dollars. The proposal would permit amounts held in a traditional IRA to be converted to a Roth IRA (or rolled over from a traditional IRA to a Roth IRA) only to the extent a distribution of those amounts would be includable in income if they were not so rolled over. Accordingly, after-tax amounts held in a traditional IRA could not be converted to Roth amounts. A similar rule would apply to eligible retirement plans. This proposal would apply to distributions occurring after December 31, 2015.

12.     Eliminate Deduction for Dividends on Stock of Publicly-Traded Corporations Held in Employee Stock Ownership Plans. The proposal would repeal the deduction currently available for dividends paid with respect to employer stock held by an ESOP sponsored by a publicly traded corporation. Rules allowing for immediate payment of an applicable dividend and permitting the use of an applicable dividend to repay loans used to purchase the stock of the publicly traded corporation would continue to apply. This proposal would apply to dividends and distributions that are paid after the date of enactment.

13.     Repeal Exclusion of Net Unrealized Appreciation in Employer Securities. The proposal would repeal the exclusion of net unrealized appreciation in employer stock for participants in tax-qualified retirement plans who have not yet attained age 50 as of December 31, 2015. Participants who have attained age 50 on or before December 31, 2015 would not be affected by the proposal. The proposal would apply to distributions made after December 31, 2015.

14.     Require Form W-2 Reporting for Employer Contributions to Defined Contribution Plans. The proposal would require employers to report the amounts contributed to an employee’s accounts under a defined contribution plan on the employee’s Form W-2. This proposal would be effective for information returns due for calendar years beginning after December 31, 2015.

15.     Increase Certainty with Respect to Worker Classification. For both tax and nontax purposes, workers must be classified into one of two mutually exclusive categories: employees or independent contractors. Worker classification generally is based on a common-law test for determining whether an employment relationship exists. The main determinant is whether the service recipient has the right to control not only the result of the worker’s services but also the means by which the worker accomplishes that result. These determinations directly affect entitlement to employee benefit plan coverage. Under a special provision (section 530 of the Revenue Act of 1978), a service recipient may treat a worker as an independent contractor for Federal employment tax purposes even though the worker actually may be an employee under the common law rules if the service recipient has a reasonable basis for treating the worker as an independent contractor and certain other requirements are met. If a service recipient meets these requirements, then the IRS is prohibited from reclassifying the workers as employees. The special provision also prohibits the IRS from issuing generally applicable guidance addressing the proper classification of workers.

The proposal would permit the IRS to require prospective reclassification of workers who currently are misclassified and whose reclassification has been prohibited under current law. The Department of the Treasury and the IRS also would be permitted to issue generally applicable guidance on the proper classification of workers under common law standards. For this purpose, Treasury and the IRS would be directed to issue guidance interpreting common law in a neutral manner, and would be expected to develop guidance that would provide safe harbors and/or rebuttable presumptions. Service recipients would be required to give notice to independent contractors, when they first begin performing services for the service recipient, that explains how they will be classified and the consequences thereof, e.g., tax implications, workers’ compensation implications, wage and hour implications. The IRS would be permitted to disclose to the Department of Labor information about service recipients whose workers are reclassified.

This proposal would be effective upon enactment, but prospective reclassification of those covered by the current special provision would not be effective until the first calendar year beginning at least one year after date of enactment. The transition period could be up to two years for workers with existing written contracts establishing their status.

At this point it is difficult to predict whether any of these proposals, many of which are not new, will become law. As in previous years, the Obama administration’s budget proposals were labeled “dead on arrival” by the Republican-controlled Congress (or perhaps even more appropriately “dead even before arrival”). While uncertain, some of these proposals could find their way into a compromise package that ultimately might be negotiated, so some attention is warranted.

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Reimbursing Employees for Individual Health Insurance Policies Subjects Employers to Hefty Excise Taxes

What, you may ask? That’s right. It no longer works to reimburse employees for the purchase of an individual health insurance policy. I know, many of you have always done this. Well, not any longer under guidance issued under the Affordable Care Act (ACA). Beginning with an IRS Notice issued in September 2013 and most recently in November 2014 DOL FAQs, the federal government has made it clear that this practice does not work under the ACA. While it flew under the radar for some, this rule became effective in 2014. (more…)

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Attention All You Procrastinators!

The Centers for Medicare and Medicaid Services (CMS) has postponed to 11:59 pm on December 5, 2014, the deadline for health insurance issuers and self funded plans to submit their annual enrollment count for the transitional reinsurance program. The deadline was otherwise November 15, 2014. The payment deadlines of January 15, 2015 and November 15, 2015 have not been extended. (more…)

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