On December 2, 2016, the Supreme Court of the United States granted the petitions for writs of certiorari to Advocate Health Care, et al. v. Stapleton, Maria, et al., St. Peter’s Healthcare, et al. v. Kaplan, Laurence and Dignity Health, et al. v. Rollins, Starla, all of which previously requested the Court review their arguments on whether the church plan exemption available under the Employee Retirement Income Security Act of 1974, as amended (ERISA), applies so long as a tax-qualified retirement plan is maintained by an otherwise qualifying church-affiliated organization, or whether the exemption applies only if, in addition, a church initially established the tax-qualified retirement plan. The three cases are being consolidated and will receive one hour total for oral argument.

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Since 2014, large church-controlled health systems that offer defined benefit pension plans have seen lawsuits filed as to whether such plans are eligible to qualify for the ERISA church-plan exemption, which governs those arrangements. When a retirement plan meets the ERISA church-plan exemption, it is exempt from the typical funding and vesting requirements of ERISA and the Internal Revenue Code as well as from the ERISA reporting and disclosure requirements. As the church-plan litigation moves to the appellate level, two adverse decisions are reached denying ERISA church-plan exemption to two health systems.

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On September 4, 2015, the U.S. Court of Appeals for the Seventh Circuit ruled in Fontaine v. Metropolitan Life Insurance Company that the Employee Retirement Income Security Act of 1974, as amended (ERISA), does not preempt an Illinois state insurance regulation that prohibits discretionary authority clauses in health and disability plan insurance policies. The Seventh Circuit upheld the ruling of the U.S. District Court for the Northern District of Illinois, which decided that the Illinois regulation was not subject to preemption under precedent set forth in prior decisions by the Supreme Court of the United States.

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As previously reported, California’s Healthy Workplaces, Healthy Families Act of 2014 (California’s Sick Leave Law) took full effect on July 1, 2015, although some provisions were effective as of January 1, 2015. The new law generally requires most employers to allow employees to accrue paid sick leave. This On the Subject discussed requirements employers must meet, including Assembly Bill 304, which amends California’s Sick Leave Law to make immediate changes.

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Recently, the U.S. Supreme Court issued a number of significant ERISA cases.  In its 2013-14 term, the Supreme Court decided two ERISA-based appeals – Fifth Third Bancorp v. Dudenhoeffer and Heimeshoff v. Hartford Life & Acc. Ins. Co.  In the current 2014-15 term, the Supreme Court already issued one ERISA decision in M&G Polymers USA, LLC v. Tackett, and will issue another ERISA decision soon in Tibble v. Edison Int’l.  Although these four cases have received much attention within the ERISA community, each year there are hundreds of other decisions issued by federal appellate and district courts that also impact a plan sponsor’s daily administration of welfare and retirement plans.  In fact, many of these district court and appellate decisions are interpreting issues raised or addressed in these Supreme Court opinions.  This article will address a few of these cases, which may not have received a lot of attention by the press, but could have long-lasting impacts on plan administration and litigation in future years.

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On March 5, 2015, the U.S. Court of Appeals for the Sixth Circuit reversed the finding of a prior Sixth Circuit panel that allowed successful plaintiffs to recover additional equitable relief in the form of disgorgement of profits under a return-on-equity analysis in addition to the recovery of the denied benefits. This decision realigns the Sixth Circuit with the other circuits by requiring that plaintiffs prove a separate injury in order to receive additional equitable relief under ERISA.

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M&G Polymers USA, LLC v. Tackett, a recent unanimous decision by the Supreme Court of the United States, is a game changer. By expressly repudiating the U.S. Court of Appeals for the Sixth Circuit’s 1983 Yard-Man decision and the many decisions following it, the Supreme Court rejected three decades of Sixth Circuit law inferring that retiree health benefits are vested for retirees’ lives, and provided new clarity in interpretation of retiree medical benefits under collective bargaining agreements.

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On September 10, 2014, California’s Healthy Workplaces, Healthy Families Act of 2014 (California’s sick leave law) became law.  The new law requires most employers to allow employees to accrue up to three days of paid sick leave per year based on an accrual of at least one hour of paid sick leave for every 30 hours worked.  California’s sick leave law does provide for various accrual caps, in deference to employers that already have a paid time off (PTO) policy meeting certain standards, as well as various other exceptions.  Employees may use the paid sick leave to care for themselves or other family members.  Notably, the new law imposes notice, posting and record-retention obligations with which employers must now comply.

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On September 16, 2014, the United States Senate unanimously approved Senate Bill 2511, which would amend Section 4062(e) of the Employee Retirement Income Security Act of 1974, as amended (ERISA), to clarify the definition of substantial cessation of operations.  ERISA Section 4062(e) enables the Pension Benefit Guaranty Corporation to require that employers financially guarantee pension obligations based on a plan’s underfunded termination liability when an employer that maintains a pension plan shuts down operations at a facility, and as a result, more than 20 percent of the employer’s employees who are plan participants incur a separation from employment.

The bill revises ERISA Section 4062(e) to clarify that a “substantial cessation of operations” occurs when an employer permanently ceases operations at a facility and, as a result, there is a “workforce reduction” of more than 15 percent of all eligible employees at all facilities in the contributing employer’s controlled group.  Under the amendment, a “workforce reduction” would mean the number of eligible employees at a facility who are separated from employment by reason of the permanent cessation of operations of the employer at the facility.  Certain eligible employees would be excluded from the reduction analysis, including employees who, within a reasonable period of time, are replaced by the employer, at the same or another facility in the United States, by an employee who is a citizen or resident of the United States.  In addition, employees would not be not taken into consideration for these purposes following the sale or other disposition of the assets or stock of the employer if the acquiring entity maintains the single-employer plan of the predecessor employer that includes assets and liabilities attributable to the accrued benefit of the employee and either (1) the employee is separated from employment at the facility, but within a reasonable period of time, is replaced by the acquiring entity by an employee who is a citizen or resident of the United States, or (2) the eligible employees continues to be employed at the facility of the acquiring entity.

The Congressional Budget Office estimates that Senate Bill 2511 would reduce the contributions that plan sponsors are required to make to their plans as a result of terminating operations at a facility, leading to increases in employer revenues and decreases in direct spending.  The House of Representatives concluded its fall session on September 19, 2014 without acting on the bill.  It remains to be seen whether the House will take up the Senate bill when it returns for a “lame-duck” session after the mid-term elections.