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News Items, by Subject

Death benefits, incl. life insurance

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Surprise! A QDRO Can Apply to a Welfare Benefit Plan
"When the plan administrator receives a QDRO for a pension plan, does it have an affirmative duty to ask whether the divorce decree has any provisions regarding life insurance beneficiary designations? If the plan administrator receives a divorce decree with a provision regarding a life insurance beneficiary designation, does it have an affirmative obligation to determine whether the domestic relations order is 'qualified' and, if not, advise the parties so it can be corrected? Does the plan administrator need to revise its QDRO procedures to apply to welfare benefit plans as well as pension plans?" (Dickinson Wright)
ASB Approves Exposure Draft of a Revision of ASOP No. 2
"The ASB recently approved an exposure draft of a revision of ASOP No. 2, now titled 'Nonguaranteed Elements for Life Insurance and Annuity Products'.... Notable changes from the existing ASOP include clarification to the scope, expansion and clarification of definitions and guidance, and the introduction of the concept of an insurer's NGE framework, which includes the determination policy, how policy classes are established, and the practices used to determine NGE scales." (Actuarial Standards Board)
ERISA Preemption of State Slayer Statutes: Does It Matter?
"Over the last decade, courts around the country have been asked to decide whether ERISA preempts ... state laws that prohibit a murderer from collecting benefits as the beneficiary of the victim's estate or as the surviving spouse of the victim under an insurance policy or benefit plan. Courts have come down on both sides of the issue ... And some courts have decided that the question is moot because, even if the state's slayer statute is preempted, federal common law prohibits a killer from being rewarded for their crime as a beneficiary so the outcome is the same." (Verrill Dana LLP)
Themes in Recent Employee Benefits Litigation
"Good fiduciary process continues to win ... Who must prove a fiduciary breach caused losses? It depends.... Administrative staff can create fiduciary liability ... Harder for fiduciaries to win on statute of limitations grounds ... Pension lawsuits challenge benefit calculation ... Fiduciaries win life insurance conversion suit ... Benefit interference claim proceeds." (CapTrust)
Group Life Insurance: Communication Pitfalls
"Several recent court cases have been brought against employers regarding denied claims due to improper communication. In some cases, employers were required to pay the full life insurance benefit out of company funds.... [H]ow does an employer avoid becoming a litigant on a group life insurance case? ... Whether the coverage is paid by the employer or the employee, there are important steps to follow[.]" (Keller Benefit Services)
Employer Must Pay Dependent Life Insurance Benefits to Employee Due to Failure to Provide Summary Plan Description
"[T]he court found that the conversion was not timely exercised after the divorce because Snitselaar was not provided the SPD as required by ERISA. The court entered judgment in favor of Snitselaar against Mount Mercy for $60,000, the full amount of the dependent basic and supplemental life insurance coverages." [Snitselaar v. Unum Life Ins. Co. of America, No. 17-014 (N.D. Iowa Jan. 22, 2019)] (Kantor & Kantor)
No Fiduciary Breach Where Employer Failed to Provide Life Insurance Conversion Information
"The Sixth Circuit explained that ... a fiduciary is not liable for failing to disclose information that ERISA does not require be disclosed ... A dissenting opinion focused on a 'benefit summary report' ... [which] contained information about the life insurance plan ... but did not address conversion rights. In the dissenting judge's view, the omission of conversion information from this report -- which the employer had provided on its own initiative -- would suffice to support a breach of fiduciary duty claim at this stage[.]" [Vest v. Resolute FP US Inc., No. 18-5046 (6th Cir. Oct.10, 2018)] (Thomson Reuters / EBIA)
State Law Claims Over Fraudulent Payment of Life Insurance Benefits Were Not Preempted by ERISA
"Plaintiff Flinn alleged that his deceased wife's sister, an attorney, forged a power of attorney on this behalf to get Minnesota Life to send payment of life insurance benefits to her rather than to him.... The court ... explained that the gravamen of Flinn's complaint is that the Insurers violated their state law obligation to ensure that he, or his true legal representative, received his benefit check. The court determined that his claims do not depend on the terms of the life insurance plan or benefits law generally but on state laws and federal statutes (other than ERISA). As such, they are not completely preempted by ERISA." [Flinn v. Minnesota Life Insurance Company, No. 18-10868 (D. Mass. Nov. 14, 2018) (Kantor & Kantor)
No Breach of ERISA Fiduciary Duty for Employer's Failure to Provide Notice of Life Insurance Conversion Rights
"[T]he court found that the plaintiff's claim contained no factual allegations indicating that the defendant knew that the decedent's conversion rights would be important to him and 'that [its] silence might be harmful.' Moreover, the Sixth Circuit noted that nothing required the defendant to disclose the information at issue, and that neither ERISA nor the DOL's regulations required summary plan descriptions to include information about conversion rights." [Vest v. Resolute FP US Inc., No. 18-5046 (6th Cir. Oct. 10, 2018)] (The Wagner Law Group)
2018 Life Insurers Fact Book
184 pages. "The Life Insurers Fact Book, the annual statistical report of the American Council of Life Insurers (ACLI), provides information on trends and statistics about the life insurance industry.... In 2017, group insurance represented 46 percent of all life insurance policies in force. Group purchases increased 11 percent in 2017 to $1.3 trillion. At the end of 2017, group life insurance provided $8.4 trillion of protection, 2 percent more than a year earlier." (American Council of Life Insurers [ACLI])
Sixth Circuit Finds No Breach of Fiduciary Duty When Participant Was Not Informed of Life Insurance Conversion Right
"Here, the complaint contained no factual allegations indicating that Resolute knew that Arthur's ability to convert would be important to him. Nothing required Resolute to expressly disclose the information at issue. Neither ERISA nor the DOL's regulations require SPDs to include conversion information. In addition, the SPD explains that insurance will cease upon termination of active employment, that an employee may convert the coverage, and that total disability may entitle an employee to continued coverage subject to premium payment." [Vest v. Resolute FP US Inc., No. 18-5046 (6th Cir. Oct. 10, 2018)] (Kantor & Kantor)
Life Insurance Purchased in Welfare Benefit Fund Taxed Under Split-Dollar Rules
"The Tax Court rejected the taxpayers' argument that neither the welfare benefit plan nor its contractual death benefit constituted life insurance, and instead looked through the trust to the life insurance policy in reliance on the attribution rule cited above. The Tax Court also found that the insurance was not group-term life insurance, in part because of the nature of the insurance product and in part because the amount of insurance was not determined under 'a formula that precludes individual selection' as required by the section 79 regulations." [De Los Santos v. Comm'r, T.C. Memo. 2018‑155 (Sept. 18, 2018)] (Eversheds Sutherland)
Nondiscrimination Testing of Group Term Life Insurance: An Overview (PDF)
"Group term life insurance is employer-provided if the policy is 'carried directly or indirectly' by the employer.... Although amounts included in a key employee's income are not subject to federal income tax withholding, they are subject to withholding for FICA taxes.... Although amounts included in a key employee's income are not subject to federal income tax withholding, they are subject to withholding for FICA taxes." (Buck)
Fifth Circuit Agrees with Tax Court: Unwanted Employer-Paid Life Insurance Taxable to Employee
"In 2015, the employee filed an amended tax return for 2011 that recognized (as income) the previously unreported capital gains and dividends, but removed the $891 in life insurance premiums that he had previously reported as income on his original 2011 return. The employee asserted that the $891 should not have been included in his 2011 taxable income because he neither requested nor wanted the life insurance coverage. " [Ramsay v. Comm'r, No. 18-60136 (5th Cir. July 23, 2018)] (The Wagner Law Group)
Group Life Insurance a Desirable Voluntary Employee Benefit
"Although just over a quarter of employed Americans (27%) have voluntary group life insurance, 68 percent of workers who say they don't because their employer doesn't offer it would be somewhat or very likely to purchase it if offered at their company.... 60 percent of employees who have it say it's to protect family/loved ones from future financial hardship; ... 27 percent to replace a spouse/partner's income in the event of their passing; and 26 percent to leave an inheritance for children or grandchildren." (OneAmerica)
One Sure-Fire Way to Engage Employees in Voluntary Benefits
"One way is to understand what employees might need given their life stage, family situation or other variables. To help employees sort this out, here are few scenarios of how voluntary benefits could help employees[.]" (Voya)
In Beneficiary Dispute, Supplemental Life Insurance Policy Was Subject to ERISA
"The Seventh Circuit concluded that the policy failed the safe harbor ... because the employer had performed all administrative functions associated with maintenance of the policy.... In particular, the SPD indicated that: [1] The employer was the policyholder for all components of its plan, of which the supplemental life insurance policy was one listed item of several components. [2] The supplemental policy would remain part of the employer's group insurance policy, though it could be converted to an individual life insurance policy in certain situations." [Cehovic-Dixneuf v. Wong, No. 17-1532 (7th Cir. July 11, 2018)] (Thomson Reuters Practical Law)
Life Insurance Denial Overturned Due to 'Procedural Unreasonableness'
"The appellate court reversed the trial court's decision and overturned the benefit denial, citing the insurer's failure to mention its toxicologist's report in its denials or provide the report to the wife in response to her attorney's written request for documents that the insurer 'may rely on' in making its decision. The court concluded that the failure to acknowledge the toxicology report indicated that the insurer did not consider all relevant evidence, amounting to procedural unreasonableness." [White v. Life Ins. Co. of North America (LINA), No. 17-30356 (5th Cir. June 13, 2018)] (Thomson Reuters / EBIA)
More Trouble for AD&D and Life Insurance Plan Administrators in Drunk Driving Cases
"[T]he Fifth Circuit joined the other circuits in reading these exclusions to require an insurer to conclude that the insured was intoxicated at the time of the accident, which in turn requires some form of scientific proof. It is not sufficient, for example, for a toxicology report to reveal drugs in an insured's system. It also may not be it sufficient, depending on the jurisdiction, that a toxicology report reveal alcohol intoxication at some point after the accident." [White v. LINA, No. 17-30356 (5th Cir. June 13, 2018)] (Seyfarth Shaw LLP)
Fourth Circuit Finds Insurer Not Liable for Employer's Mistake
"The Fourth Circuit found in favor of an insurer on a claim for life insurance benefits, finding the insured's failure to submit the required evidence of insurability was not excused by his employer having wrongly deducted premiums for that coverage from his pay.... [T]he court found the employer, and not LINA, was tasked with day-to-day administration of the plan ... LINA was not responsible for notifying the decedent of the EOI requirement, and therefore could not be liable for a breach of that duty." [Gordon v. CIGNA Corp., No. 17-1188 (4th Cir. May 15, 2018)] (Seyfarth Shaw LLP)
Fifth Circuit Rules in Favor of Life Insurance Beneficiary Based on Expert Report Insurer Failed to Disclose During Claims Process
"[T]he Fifth Circuit was troubled that LINA withheld an expert report that it commissioned during the claims process and violated ERISA Regulations by failing to disclose the report to the beneficiary. This fact appeared to tip the scale in favor of the beneficiary. The message to insurance companies should be loud and clear: It doesn't pay to hide the ball." [White v. Life Insurance Company of North America, No. 17-30356 (5th Cir. June 13, 2018)] (Kantor & Kantor)
Insurer's Payment of Reduced Benefit Not a Fiduciary Breach
"[An] insurance company did not breach its fiduciary duty under ERISA when it paid an insured's widow only half of the amount of life insurance coverage for which the decedent had paid premiums.... [T]he Fourth Circuit held that the insurer had no fiduciary duty to notify the insured that he had not satisfied the evidence of insurability requirement needed for supplemental benefits beyond the guaranteed amount because that task was solely the responsibility of the employer." [Gordon v. CIGNA Corp., No. 17-1188 (4th Cir. May 15, 2018)] (The Wagner Law Group)
Court Awards Benefits Based on Flawed Eligibility Procedures for Dependent Life/AD&D Insurance
"Although the son lost eligibility for the dependent life and AD&D coverage when he turned 23 in 2014, the employee did not notify her employer or the insurer. Neither the employer nor the insurer notified the employee that her son was no longer eligible for the coverage, and they continued to collect premiums from the employee's wages. After the son's death in 2015, the insurer denied the employee's claim for benefits due to his age and refunded the premiums." [Frye v. Metropolitan Life Ins. Co., No. 17-31 (E.D. Ark. Feb. 20, 2018)] (Thomson Reuters / EBIA)
Denial of Supplemental Life Benefit Overturned Due to Poor Claims Administration
"This is a case study in how not to administer benefits -- a vague SPD, inconsistent explanations, cryptic claim records filled with acronyms and jargon, and poor coordination among the plan sponsor, TPA, and insurer resulted not only in an award of benefits but potential liability for the wife's attorney fees. Also, the maximum ERISA penalty was awarded for the employer's failure to timely provide certain documents the wife had requested." [Sepulveda-Rodriguez v. MetLife Group, Inc., No. 16-507 (D. Neb. Dec. 28, 2017)] (Thomson Reuters / EBIA)
Mortality Data Show Declining Longevity Improvements
"U.S. life expectancies declined in 2016. This is the second consecutive year of diminishing life expectancies, driven by declines in mortality improvement over the recent past.... Going forward, [the authors] believe it is appropriate to assume positive mortality improvement for the population for most ages.... Mortality improvement will be greatest at older ages, albeit at lower levels due to some of the slowdowns noted." (Willis Towers Watson)
Life Insurance: The Bonus Plan for the Executive Who Has Everything
"Under the executive bonus plan, the employer pays a bonus to the employee so the employee can purchase (and own) a fixed indexed universal life (FIUL) insurance policy. The employee then uses the bonus to pay the entire policy premium directly to the insurance company. Because the employee is the owner of the policy, the employee can access any available cash value accumulation through policy loans and withdrawals." (
Sixth Circuit Declines to Adopt 'Substantial Compliance' Test for Requirements of a Qualified Domestic Relations Order
"[T]he Sixth Circuit determined that a divorce decree suffices as a qualified domestic relations order ('QDRO') that clearly specifies the decedent's daughter as the life insurance beneficiary under ERISA, and it affirmed the district court's order requiring Sun Life to pay the life insurance proceeds to her.... The court illustrated what is meant by 'clearly specified.' " [Sun Life Assurance Co. of Canada v. Jackson, No. 17-3120 (6th Cir. Dec. 13, 2017)] (Kantor & Kantor)
Life Insurance: The Versatile Tool for Retirement Protection (PDF)
10 pages. "Just as human capital faces risk -- mainly premature death and disability -- during a couple's working years, retirees face a number of risks that may negatively impact their financial capital and the resulting income it is expected to produce. These risks include the risk of outliving financial capital, investment risk, healthcare costs, and taxes.... [P]ermanent life insurance can be used to help replace financial capital that is diminished due to the occurrence of each of these risk events during retirement." (Prudential)
Are You Up to Date on Qualified Plan Beneficiary Rules?
"Many different rules impact the administration of paying a deceased participant's benefit to the correct beneficiary. These include knowing your plan document, required minimum distribution (RMD) regulations for beneficiary options, spousal consent issues, properly completed beneficiary designation forms, and having iron-clad procedures for paying beneficiaries. Keeping up to date with these rules can save you time, money and aggravation." (PenChecks)
Text of Ninth Circuit Opinion Attributing Employer's Actions to Insurer in Award of Life Insurance Benefits (PDF)
"Because Providence [as the employer] was acting as MetLife's agent for purposes of collecting, tracking, and identifying inconsistencies with the evidence of insurability requirement, Providence's knowledge and conduct with regard to those matters are attributed to MetLife.... The deductions of premiums, MetLife and Providence's failure to ask for a statement of health over a period of months, and Providence's representation to Salyers that she had $250,000 in coverage were collectively 'so inconsistent with an intent to enforce' the evidence of insurability requirement as to 'induce a reasonable belief that [it had] been relinquished.' " [Salyers v. Metropolitan Life Ins. Co., No. 15-56371 (9th Cir. Sept. 20, 2017)] (U.S. Court of Appeals for the 9th Circuit)
Who Is Entitled to Death or Survivor Benefits from an ERISA Plan or from a Federal Employee Benefit Plan?
"Designations may be effective even if there are ambiguities about the benefit shares of each beneficiary and/or the form of payment. An effective designation must be authenticated ... The signature may not need to be the participant's name or even be legible. The federal (Phoenix) substantial compliance doctrine ... creates benefit entitlements enforceable against the plan. The Amara equitable relief principles ... principles may create benefit entitlements enforceable against the plan administrators using those unauthorized procedures or forms." (Albert Feuer, via SSRN)
[Official Guidance] Text of IRS Form 8925: Report of Employer-Owned Life Insurance Contracts (PDF)
Rev. Sept. 2017. "Use Form 8925 to report the number of employees covered by employer-owned life insurance contracts issued after August 17, 2006, and the total amount of employer-owned life insurance in force on those employees at the end of the tax year. Policyholders must also indicate whether a valid consent has been received from each covered employee, and the number of covered employees for which a valid consent has not been received." (Internal Revenue Service [IRS])
Employers Pull Back on Popular Life Insurance Benefits
"As many as 108 million Americans have life insurance coverage through the workplace, compared with 102 million covered by individual life insurance ... It is the first time that more people are covered by workplace life insurance than by individual policies since LIMRA began tracking data in 1960, LIMRA researchers said.... Meanwhile, companies are cutting back on group life as rising health care costs erode budget allocations for other benefits, Potter said. Another reason for the retreat is that employers do not think their employees value this benefit, which analysts say is a misread." (
Less Than Half of Employed Americans Have Workplace Group Life Insurance
"Less than half of employed Americans (45 percent) have voluntary group life insurance provided by their employer. Among those who don't have voluntary group insurance provided by their employer, only a small percentage (9 percent) said they had other obligations or did not see the value in it (14 percent)." (OneAmerica)
For the First Time, More Americans Are Covered by Employment-Based Life Insurance Than by Individual Life Insurance
"108 million Americans have life insurance coverage through their workplace, compared with 102 million covered by individual life insurance.... Over the past 50 years the number of Americans covered by employment-based life insurance has increased significantly (nine million in the past six years alone) ... The number of households covered by employment-based life has increased by 68 percent (to 57 million), while the number of people (adults and children) covered has almost doubled (from 55 million to 108 million)." (LIMRA)
[Discussion] Can a Dependent Life Insurance Policy Pay Death Benefits to a Beneficiary Other Than the Employee?
"Is there any legal requirement that an employee must be the beneficiary on a dependent life insurance policy? I see this in many policies and I'm not sure why this is the case. I have a situation where an employee designated his children as beneficiaries on the policy on his spouse's life. The employee made this designation on the dependent life insurance enrollment form provided by the insurer. The insurer did not object to the designation when originally made. Unfortunately, the employee's spouse passed away recently and the insurer is now saying it will not pay the children because the policy language requires the proceeds to be paid to the employee." (BenefitsLink Message Boards)
A Manslaughter Conviction May Not Prevent Receipt of ERISA Life Insurance Benefits
"Many states have enacted slayer rules to prevent murderers from inheriting from their victims, including life insurance policy proceeds. A recent case out of New York ... considered a novel question about whether or not a second-degree vehicular manslaughter conviction necessarily prevents a beneficiary from receiving life insurance proceeds. The court found that it does not." [Prudential Ins. Co. of Am. v. Govel, No. 16-297 (N.D.N.Y. June 6, 2017] (Kantor & Kantor)
Court Supports Plans' Freedom to Craft Own Process for Beneficiary Designations
"The problem with the doctrine of substantial compliance is that it undermines the preference for straightforward administrative rules favored by the Supreme Court ... because it leaves the lower court to decide issues such as what level of compliance is 'good enough' to express the plan participant's intent to change a beneficiary.... [One recent case] stated that under the federal common law equitable doctrine of substantial compliance developed in the absence of specific ERISA statutory provisions on beneficiaries, a beneficiary designation should be honored if there is evidence that a participant intended to make a change and the participant takes action similar to the action required by the plan." [Ruiz v. Publix Super Markets, Inc., No. 17-135 (M.D. Fla. March 30, 2017)] (
Court Faults Employer for Failing to Provide Accurate Information Regarding Life Insurance Conversion
"The judge faulted WellStar for not understanding its life insurance policy and incorrectly assuming that its former employee was still covered.... The court considered the fact that WellStar did not follow its own written procedures in determining it had breached its duty to the plaintiff." [Erwood v. Life Ins. Co. of North America and Wellstar Health System, Inc. Group Life Ins. Program, No. 14-1284 (W.D. Penn. Apr. 13, 2017)] (Vorys, Sater, Seymour and Pease LLP)
Second Circuit Upholds Dismissal of ERISA Claims Against Plan Defendants for Alleged 'Cross-Subsidization' Scheme
"[P]laintiffs alleged that Family Dollar negotiated a discount on the basic life insurance premium it paid, and that the Hartford offset some of this discount by increasing the supplemental life insurance premium charged to the employees who purchased supplemental coverage.... The Court determined that Family Dollar used plaintiffs' premiums for the sole purpose of covering insurance costs under the Plan, and that its use of cost-reduction strategies to minimize its cost of providing employees with basic and supplemental life insurance did not constitute a transfer for its own benefit or self-dealing in its own interest." [Hannan v. Hartford Financial Services, Inc., No. 16-1316 (2d Cir. Apr. 25, 2017)] (Robinson + Cole LLP)
Plan Administrator's Failure to Notify Beneficiary of Life Insurance Conversion Rights Was Breach of Fiduciary Duty
"The Court found that that LINA had provided an Administrative Services Manual to WellStar that explained the conversion process, and stated that WellStar was required to give notice of conversion rights. However, WellStar did not have a process for giving that notice, and did not give it to plaintiff or her husband.... [The Court imposed a surcharge of] $750,000, the amount of coverage lost by their failure to convert." [Erwood v. Life Ins. Co. of North America and Wellstar Health System, Inc. Group Life Ins. Program, No. 14-1284 (W.D. Penn. Apr. 13, 2017)] (Robinson + Cole LLP)
Employer Liable for Failing to Provide Life Insurance Conversion Information to Disabled Employee
"Notwithstanding that the right to convert to an individual insurance policy had long since expired, the court crafted a remedy under ERISA that imposed a surcharge on the employer equal to the $750,000 in life insurance that the physician employee would have elected to convert to an individual policy but for the plan administrator's breach of its fiduciary duty; the court also awarded the physician's spouse interest, legal fees and costs associated with bringing the lawsuit. Because the ability to convert to an individual policy was no longer available, the employer, and not the insurance company, is obligated to make all of these payments." [Erwood v. Life Insurance Company of North America and Wellstar Health System, Inc. Group Life Insurance Program, No. 14-1284 (W.D. Penn. Apr. 13, 2017)] (Buchanan Ingersoll & Rooney PC)
Avoid Costly Litigation Over Beneficiary Designations
"Language in plan documents, employee communications, and Summary Plan Descriptions should be clear and consistent. Plan administrators may also want to regularly (i.e. annually) remind participants on how to update their beneficiaries in light of life-changing events and provide them with the necessary beneficiary designation forms to do so." (Butterfield Schechter LLP)
Avoiding Beneficiary Befuddlement
"The 11th Circuit decision should be helpful to plan administrators ... [who] may wish to consider some of the following practices and additions to plan language in anticipation of these situations: [1] Giving frequent written reminders to participants about their beneficiary designations; [2] Resoliciting updated beneficiary designations from participants on a periodic basis; [3] Adopting a rule providing for the revocation of spousal designations upon divorce; [4] Adopting a rule specifying a presumption of survival in the event of the simultaneous death of a participant and beneficiary; [5] Adopting a rule that voids a beneficiary designation naming a person who is convicted of the murder of the participant." [Ruiz v. Publix Super Markets, Inc., No. 16-735 (M.D. Fla. Mar. 30, 2017)] (Benefits Bryan Cave)
How to Avoid Costly Beneficiary Designation Litigation: Helpful Hints for All Benefit Plans
"When there is a beneficiary dispute, the plan's written terms must be followed, to save the plan and its sponsor from costly litigation, avoid double liability, eliminate the need to examine and evaluate extrinsic documents to discern an employee's intent, and to make sure that benefits are paid quickly. Using the Supreme Court opinion as a guide, [a recent district court] opinion thus concluded that it does not matter if a participant 'substantially complies' with designation procedures. Instead, a designation will not be changed unless the plan's specific requirements are precisely followed." [Ruiz v. Publix Super Markets, Inc., No. 16-735 (M.D. Fla. Mar. 30, 2017)] (Foley & Lardner LLP)
Are Your 'Voluntary' Benefit Plans Subject to ERISA?
"[T]here are four requirements of the voluntary plan safe harbor.... The benefit plan must be completely voluntary and employee paid, with no employer contributions made in any form for any employees.... [T]he employer must not endorse the plan. In simple terms if you endorse it, you own it (for purposes of ERISA) ... Finally, under the safe harbor, employers are prohibited from receiving any compensation that exceeds reasonable reimbursement for collecting and remitting premium payments." (Graydon Head & Ritchey LLP)
Avoid Disaster When Designating Beneficiaries on Your Retirement Plan
"What happens if there is no beneficiary designation or the named beneficiary or beneficiaries predeceased the account owner? ... What else can go wrong ... Beneficiary designations are incomplete ... Beneficiary designations name an obsolete beneficiary ... Beneficiary designations aren't thought through.... While any beneficiary has the option of taking the entire account balance immediately, doing so means lumping the income in one year which can result in paying tax at higher marginal rates, and foregoing the benefits of stretch-out. [Certain options] provide the opportunity to avoid or minimize unfortunate results[.]" (Moss Adams)
Allstate Can't Nix Retiree Lawsuit Over Lifetime Benefits
"The retirees sufficiently alleged that Allstate violated [ERISA] by failing to provide life insurance at no cost for the rest of their lives, Watkins said. In addition, the retirees adequately alleged that Allstate breached its fiduciary duties by failing to communicate truthfully about the terms of the company's employee group life insurance plan." [Turner v. Allstate Ins. Co., No. 13-00685 (M.D. Ala. Sept. 27, 2016; additional injunctive relief granted to plaintiffs)] (Bloomberg BNA)
Court Finds Employer, Not Group Life Insurer, Liable for $314,000 Death Benefit
"The court ultimately ruled in favor of the plaintiffs, finding that the employer had breached its fiduciary duty by administering the plan in a way that allowed the employee to believe incorrectly that a certain level of life insurance coverage was in place. As a result, the court ordered the employer, and not the insurer, to pay $314,000, the amount of the supplemental coverage." [Van Loo v. Cajun Operating Co. dba Church's Chicken, No. 14-10604 (E.D. Mich June 6, 2016)] (The Wagner Law Group)
The Implications of Carrying Higher Housing Debt Into Retirement (PDF)
"While it may have been true that earlier generations of retirees did not have a widespread need to carry life insurance protection in retirement, the coming generations of retirees will have this need due to the amount of debt they are choosing to carry into their retirement years and the loss of income resulting from the death of a spouse." (Prudential)
Employer Who Self-Administered Life Insurance Plan Held Liable for Coverage Provided in Error
"The employee ... increased supplemental coverage over the years beyond the level at which coverage was available without evidence of insurability [EOI]. However, the employee was never sent the EOI form and the EOI form was never completed.... The court found that the employer breached its fiduciary duty by administering the plan in a way that allowed the employee to believe incorrectly that coverage was in place, particularly when the employee had paid premiums for the coverage for a number of years.... The employer will have to pay ... $314,000." [Van Loo v. Cajun Operating Co. dba Church's Chicken, No. 14-10604 (E.D. Mich June 6, 2016)] (Stinson Leonard Street)
Court Nixes Class Action Suit Alleging Fiduciary Breach for Supplemental Life Pricing
"A federal district court in Connecticut has dismissed a class action suit ... [which] alleged the employer negotiated a discount on the company-paid basic life insurance by increasing the rates charged employees who purchase supplemental coverage. The plaintiffs alleged this 'cross subsidization and kickback scheme' was a violation of the insurer's and the employer's fiduciary duties.... The plaintiffs have filed an appeal with the U.S. Court of Appeals for the Second Circuit, which has not yet indicated whether it will hear the case." [Hannan v. The Hartford Financial Services, Inc., No. 15-395 (D. Conn. Mar. 29, 2016)] (Lockton)
Many Employers Want Guidance From Financial Advisors About Voluntary Benefit Options
"Two of five employers that currently do not rely on guidance from a financial advisor say they would welcome such help with voluntary benefit options such as retirement plans, life and disability insurance, and other protection benefits ... Firms that would characterize such assistance as 'extremely' or 'very' valuable range from 33 percent for those with fewer than 25 employees to 55 percent for those with 1,000 or more employees ... The percentages of employers that would see such advice as at least 'somewhat' or more valuable range from 75 percent for the smallest employers to 80 percent for larger firms[.]" (MassMutual)
Basic-Supplemental Life Insurance Plan Pricing Structure Upheld in ERISA Class Action
"An employee benefit plan that includes an alleged subsidization component for its basic and supplemental options is neither prohibited by [ERISA] nor a violation of the plan sponsor or service provider's fiduciary duties ... Plaintiffs [had] alleged that the Insurer and the Company engaged in a 'cross-subsidization scheme' to overcharge plaintiffs for supplemental life insurance that was higher than called for by the underwriting and actuarial pricing experience for the purpose of lowering the price that the Company incurred for 'non-contributory' basic group life insurance coverage." [Hannan v. Hartford Financial Serv. Inc., No. 3:15-cv-0395 (D. Conn. Mar. 29, 2016)] (Sutherland Asbill & Brennan LLP)
Life Insurance and Retirement Plan Benefits: Are Your Clients Achieving Their Intended Goals?
"Individuals may not rely on many of the traditional rules of construction for probate asset dispositions to conform their designations to their intended goals, particularly as those goals change. This is particularly the case for benefits from ERISA plans ... [It] is advisable for an individual to ... consider beneficiary designations in the context of the disposition of his or her other assets ... [and] consider the extent, if any, it is advisable to make his or her estate or a trust the plan beneficiary in order to provide the desired beneficiaries with the desired benefits, if a plan's designation terms do not permit the desired choices to be made directly." (Albert Feuer, via SSRN)
Interpleader Can Prevent Overpaying for Death Benefits
"If two or more parties are claiming to be the rightful beneficiary of a deceased participant's benefit, one option is to review all the facts and make a determination applying the plan's terms through its claims procedures. The risk of this approach is that if the administrator makes a decision that is overturned on review by a court, the plan could end up paying twice. A second option is for plan administrators to preemptively file an interpleader action. A plan can file an interpleader action as a plaintiff in a case, name the disputing beneficiaries as defendants, and then tender the benefit to the court and let the court resolve who is the rightful owner. A recent case illustrates how choosing between these forums can mean drastic differences in determining who receives the benefit." [Jenkins-Dyer v. Drayton, No. 2:13-CV-02489-JAR (D. Kan. Sept. 25, 2015)] (HR Daily Advisor)
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