19.2 Rights, Responsibilities, and Principal Defenses

• Library: Employment Law in Virginia (Virginia CLE) (2020 Ed.)

19.2 RIGHTS, RESPONSIBILITIES, AND PRINCIPAL DEFENSES

19.201 Overview.

A. Scope of Coverage. The United States Supreme Court has stated that ERISA is "a comprehensive statute designed to promote the interests of employees and their beneficiaries in employee benefit plans." ¹¹² ERISA imposes participation, funding, and vesting requirements on those plans. ¹¹³ The Court has also said that "ERISA does not mandate that employers provide any particular benefits, and does not itself proscribe discrimination in the provision of employee benefits." ¹¹⁴

B. Duties of Disclosure and Reporting. ERISA sets various uniform standards, including rules concerning reporting, disclosure, and fiduciary responsibility, for both pension and welfare plans. ¹¹⁵

For example, under ERISA section 204(h), ¹¹⁶ if a pension plan amendment would cause significant reductions in the rate of future benefit accrual, advance notice must be given to all affected participants within a reasonable period before the effective date of the amendment. In the event of an "egregious" failure to comply with section 204(h), plan participants are entitled to the greater of (i) those benefits available prior to the plan amendment, or (ii) those benefits available under the amended plan. ¹¹⁷ In 2001, section 4980F was added to the Internal Revenue Code to provide parallel notice requirements and to impose an excise tax for failure to comply. The IRS issued regulations in 2003 interpreting ERISA section 204(h) and section 4980F. ¹¹⁸

In an unpublished decision, the Fourth Circuit upheld a district court's finding that the employer failed to give adequate notice of a significant reduction in future pension accruals under ERISA section 204(h) and that the

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failure was egregious. ¹¹⁹ The court reasoned that under section 204(h)(2), the notice must be "written in a manner calculated to be understood by the average plan participant and [must] provide sufficient information . . . to allow applicable individuals to understand the effect of the plan amendment." ¹²⁰

C. Preemption of State Law. ERISA preempts, with certain exceptions, "any and all State laws insofar as they may now or hereafter relate to any employee benefit plan" covered by ERISA. ¹²¹ In ERISA, Congress applied the principle of preemption "in its broadest sense to foreclose any nonFederal regulation of employee benefit plans," creating only very limited exceptions to preemption. ¹²²

In Aetna Health Inc. v. Davila, ¹²³ the Supreme Court clarified its previous decision in Pegram v. Herdrich ¹²⁴ and held that a Texas statute permitting state claims against HMOs based on the HMO's benefit determinations conflicted with the clear intent of Congress to make the ERISA remedy exclusive and was preempted by ERISA.

In Gobeille v. Liberty Mutual Insurance Co., ¹²⁵ the U.S. Supreme Court held that ERISA preempts Vermont's "all-payer database" law—to the extent it is applied to self-insured health plans. Vermont's law required all public and private entities that pay for healthcare services—including insurers, government programs and third-party administrators—to transmit certain claims data to the state's database. The Supreme Court found that the Vermont statute "imposes duties that are inconsistent with the central design of ERISA, which is to provide a single uniform, national scheme, for the administration of ERISA plans without interference from laws of the several States[.]" ¹²⁶

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ERISA preempts application of Virginia's anti-subrogation statute to an unfunded ERISA welfare benefit plan that is self-funded except for its insured vision benefit. ¹²⁷

D. Internal Dispute Resolution Procedures. ERISA requires benefit plans to provide an internal claims procedure for participants whose benefit claims have been denied. ¹²⁸ Plans must give written notice of the reasons for denial of a benefit and afford participants an opportunity for a "full and fair review" of the decision. ¹²⁹

Department of Labor final regulations amended the former claims procedure to significantly reduce the time permitted for processing health and disability benefit claims. ¹³⁰ The regulations also clarify existing standards for other employee benefit plans.

Additional regulations for disability benefit claims were issued in 2016. ¹³¹ The new regulations, which apply to ERISA benefit plans (including retirement, severance, and "top hat" plans) that provide disability benefits, are intended to strengthen and expand the rules governing claims and appeals for such benefits previously in effect. Plans subject to the rule must ensure that any disability benefit claims filed on or after April 1, 2018 comply with the new standards.

In Aetna Health Inc. v. Davila, the Supreme Court observed that ERISA's "'comprehensive legislative scheme' includes 'an integrated system of

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procedures for enforcement' . . . [that is] a distinctive feature of ERISA, and essential to accomplish Congress' purpose of creating a comprehensive statute for the regulation of employee benefit plans." ¹³² The Court further noted:

ERISA § 503, which specifies minimum requirements for a plan's claim procedure, requires plans to "afford a reasonable opportunity to any participant whose claim for benefits has been denied for a full and fair review by the appropriate named fiduciary of the decision denying the claim." 29 U.S.C. § 1133(2). . . . The relevant regulations also establish extensive requirements to ensure full and fair review of benefit denials. See 29 CFR § 2560.503-1 (2003). ¹³³

E. Anti-Alienation Provisions.

1. Federal Cases. Section 206(d) of ERISA provides that pension plan benefits may not be assigned or alienated except pursuant to a qualified domestic relations order (QDRO). ¹³⁴ A debtor's accrued benefit in an ERISA-qualified pension plan cannot be attached as part of the debtor's bankruptcy estate, even though the debtor is the president and majority stockholder of the employer-sponsor (and arguably in control of the plan). ¹³⁵

In Kennedy v. Plan Administrator for DuPont Savings & Investment Plan, ¹³⁶ the Supreme Court held that the administrator of an ERISA retirement plan properly paid a deceased employee's account balance to his former spouse, notwithstanding her waiver of her claim to those benefits in the couple's divorce decree, which was never submitted to the plan administrator and was not a QDRO. The deceased employee's 401(k) plan stated that all beneficiary designations must "be made by employees in the

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manner prescribed by the [plan administrator]" and that a beneficiary may renounce his or her interest in the plan by submitting a "qualified disclaimer" of benefits as defined under the Internal Revenue Code. ¹³⁷ The employee had designated his then-wife as his beneficiary under the 401(k) plan, and never changed his beneficiary designation after his divorce.

The Court based its decision on the "plan document rule," holding that because plan administrators are required by ERISA to adhere to plan documents, the plan administrator may ignore a purported waiver if the waiver is executed in a manner inconsistent with the plan documents. ¹³⁸ The Court found that honoring the divorce decree would be inconsistent with the plan documents because the plan's "qualified disclaimer" procedure had not been satisfied.

The Court cautioned that ERISA does not bar all waivers and noted that its opinion does "not address a situation in which the plan documents provide no means for a beneficiary to renounce an interest in benefits." ¹³⁹ The Court did not rule that the former wife's waiver contained in the parties' final divorce decree was invalid, but rather that the plan could disregard the waiver and follow plan terms in paying benefits. The Court stated that the anti-alienation provision of ERISA did not invalidate the waiver in the divorce decree because it was not an "assignment or alienation" of the former wife's interest in the plan benefits. ¹⁴⁰

In Boyd v. Metropolitan Life Insurance Co., ¹⁴¹ the Fourth Circuit relied on Kennedy's "broad endorsement" of the plan documents rule by paying benefits to a deceased plan participant's husband, the designated beneficiary, even though the participant and husband were separated at the time of her death and the husband had agreed to waive his claim to benefits under a separation agreement.

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In Hopkins v. AT&T Global Info. Solutions Co., ¹⁴² a former spouse attempted to garnish her ex-husband's ERISA pension benefits to collect unpaid alimony by means of a QDRO. The ex-husband had retired but was still living, and at the time of his retirement had been remarried. AT&T conceded that the trial court's order that required monthly payments solely from Mr. Hopkin's current pension payments was a QDRO, so only the second order requiring payments from the surviving spouse benefits was at issue. The Fourth Circuit concluded that vesting of surviving spouse benefits occurs at retirement, and for this reason the surviving spouse benefits could not be subject to a QDRO. ¹⁴³ The Fourth Circuit relied on the general finality of surviving spouse benefits in ERISA at the time of retirement to conclude that the benefit vests at retirement in the spouse to whom the participant is married at retirement. ¹⁴⁴ After retirement, under 29 U.S.C. § 1055, the court stated, such benefits cannot be changed even by the participant.

In Metropolitan Life Insurance Co. v. Marsh, ¹⁴⁵ the court held that a divorce decree which meets the requirements of a QDRO is enforceable with respect to determining the beneficiary of group life insurance benefits. Although section 206(d) of ERISA (the QDRO anti-alienation provision) applies only to pension benefit plans, the court found a QDRO exception in section 514(b)(7) of ERISA, ¹⁴⁶ which is not limited to pension benefit plans.

In In re Marriage of Oddino, ¹⁴⁷ the court held that a state court had concurrent jurisdiction under section 502(e)(1) of...