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The BenefitsLink Newsletter -
Welfare Plans Edition
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September 9, 2002 - 7,257 subscribers
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Defined Contribution Health Plans: Analysis of Recent IRS Guidance and Remaining Legal Issues
Excerpt: "This article explains what a defined contribution health plan is and how it differs from two similar types of arrangements-- an FSA and an MSA. The article then goes on to discuss the tax issues concerning defined contribution health arrangements that were resolved by the recent guidance as well as the tax and legal issues that remain open." (Groom Law Group)

Changes in Health Insurance Coverage: 1994-2000 and Beyond
Excerpt: "This background report explores the insurance trends for the latter half of the 1990s and examines why the number of uninsured nonelderly Americans fell in 2000 for the second straight year.... [One] reason for the increase in employer sponsored insurance was the increase in employment in larger firms (1,000+ workers) where the likelihood of employer sponsored coverage was higher." (Henry J. Kaiser Family Foundation)

COBRA Participation Declines Amid Rising Premiums
Excerpt: "[A survey by] Charles D. Spencer & Associates Inc. found that COBRA premiums charged by employers averaged $501.71 per month, up 22.3% over 2000. The average figure combines premiums charged for single and family coverage.... The survey results, based on the responses of 180 employers, found that just 16.2% of eligible beneficiaries opted for COBRA, down from 19.5% in 2000." (Business Insurance)

Employer, Not Third-Party Administrator, Is Liable for Failure to Provide COBRA Election Notice
Hall v. CWR Construction, Inc. (E.D. Ark. 2002). Excerpt: "ERISA Section 3(16)(A) defines the plan administrator as the person so designated by the terms of the plan, or, in the absence of any designation, the plan sponsor (and for a single employer plan such as the one involved here, the 'plan sponsor' is the employer). Because in this case no plan administrator was designated in the plan, the court found that the plan administrator was the employer." (EBIA Weekly)

Eighth Circuit Says Abuse of Discretion Standard Was Proper in Life Insurance Case Against Insurer (PDF)
19 pages; particularly unusual facts, involving simultaneous potential murder and suicide exclusions. Phillips-Foster v. UNUM Life Insurance Co. (Nos. 01-3570/3648, 8th Cir. 2002). Excerpt: "[Plaintiff] must show that UNUM's potential conflict and failure to meet claim deadlines amounted to serious breaches of fiduciary duty such that 'serious doubts' are raised as to whether the administrator's decision was arbitrary or the product of her whim." (U.S. Court of Appeals for the Eighth Circuit, via

7th Circuit Finds ERISA Does Not Preempt Health Plan's State Law Claim for Fraud Against Participant (PDF)
31 pages. Trustees of the AFTRA Health Fund v. Biondi (No. 00-3598, 7th Cir. 2002). Excerpt: "The Trustees' complaint alleged that Biondi intentionally failed to notify the Fund of his divorce, and misrepresented to the Fund that he was still married to his ex-wife, in order to cause the Fund to continue to provide Hazel with dependent care coverage and benefits." (U.S. Court of Appeals for the Seventh Circuit, via

ERISA Restitution Does Not Include Insurance Coverage Lost by Plaintiff Due to Inability to Pay
Caffey v. UNUM Life Insurance Company (No. 00-5983, 6th Cir. 2002). Excerpt: "[The plaintiff] asserts that she should be compensated for her lost health and life insurance benefits, because it was UNUM's denial of disability insurance benefits that caused her to be unable to make the necessary premium payments on her other policies.... [S]uch claims are not within the scope of 'appropriate equitable relief' under 29 U.S.C. 1132(a)(3)." (U.S. Court of Appeals for the Sixth Circuit, via

Wal-Mart Sues Its Insurers Over COLI Tax Liabilities
Excerpt: "Wal-Mart has sued several insurance companies for more than $150 million in restitution for losses related to corporate-owned life insurance (COLI) policies." (

Analysis: HIPAA's Privacy Rules Withstand Federal Court Challenges in South Carolina, Texas (PDF)
2 pages. Excerpt: "On August 14, 2002, the federal district court for South Carolina dismissed the constitutional challenges to the HIPAA Privacy Rules brought by the South Carolina Medical Association ... On June 17, a Texas federal district court dismissed another constitutional challenge to the Privacy Rules launched by the Association of American Physicians & Surgeons ..." (Michael Best & Friedrich LLP)

Tenth Circuit Allows Consideration of Evidence Outside Record Created During Plan's Claims Procedure
Hall v. UNUM Life Ins. Co. of America (10th Cir. 2002). Excerpt: "[T]he Tenth Circuit held that, while de novo review should ordinarily be restricted to the administrative record, a court could supplement the record 'when circumstances clearly establish that additional evidence is necessary to conduct an adequate de novo review of the benefit decision.'" (EBIA Weekly)

Same District Court, Different Result: State Bad Faith Statute Ruled Preempted
Sprecher v. Aetna U.S. Healthcare, Inc. (E.D. Pa. 2002). Excerpt: "Less than two months after one judge in the Eastern District of Pennsylvania ruled that Pennsylvania's bad faith statute for insurance claims was not preempted by ERISA, another judge in the same district has issued a contrary ruling: that the statute was preempted." (EBIA Weekly)

QDRO Found to Apply to ERISA Welfare Plan
Principal Life Insurance Co. v. Fields, No. 01-C-0710-C (W.D. Wis., 7/29/02). Excerpt: "Upon his divorce, the participant in this case was ordered by a state court to obtain life insurance to cover his child support obligations for his daughters. Subsequently, the participant became covered under an employer-sponsored life insurance policy and ... made his children the beneficiaries. Sometime later, the participant remarried and made his new wife the beneficiary of 90% ..." (EBIA Weekly)

Plan Provisions Preclude Claim of Vested Severance Benefits, Despite Employee's Erroneous Statements
Beaver v. Earthgrains Baking Companies, Inc. (N.D. Iowa 2002). Excerpt: "EBIA Comment: [this case illustrates] the importance of including in the plan documents a clear and unambiguous reservation of the employer's right to amend or terminate the plan [and serves] as a reminder that an employer's offer of benefits can create a separate ERISA plan under which rights may vest if there is no reservation-of-rights provision." (EBIA Weekly)

Will Consumer-Driven Health Plans Provide Boost to Direct Reimbursement Dental Programs?
Excerpt: "Optimism and skepticism continue to bump heads in the world of direct reimbursement dental plans. Although the American Dental Association (ADA) has been promoting direct reimbursement plans for nearly two decades, this type of plan-where reimbursements are based on the percentage of dollars spent on treatment rather than the type of treatment-has not been widely adopted by employers." (

Public Sector Employers Take the Lead in Promoting Long-Term Care Coverage
Excerpt: "Research indicates a majority of all seniors will need long-term care (LTC) at some point in their lifetimes, but so far only a minority of this population is preparing for that reality by investing in LTC coverage. Seeking to address the need and possibly stave off demands for costly entitlement programs, the federal government and a number of states are increasingly promoting long-term care insurance benefits for their employees." (

Household Demand for Employer-Based Health Insurance
Working paper available from for $5. Excerpt: "We find that the premium, family size, income, and wealth significantly affect demand [for employer-based health insurance]. Our elasticity estimates reveal an overall, small behavioral response to changes in price with respect to health plan switching and take-up. Finally, we discuss the implications of our findings with respect to employer benefit design." (National Bureau of Economic Research)

Small Employers Reduce Health Benefits
Excerpt: "Although most large employers still offer health benefits, fewer small companies are providing coverage. Forty-five percent of employers with three to nine workers now offer no health benefits, up three percentage points from 2001, the Kaiser Family Foundation said [recently] in its annual report on employer-based insurance." (New York Times; free registration required)

Links to Items on Executive Comp, Benefits in General
(These items appear in both editions of the BenefitsLink Newsletter)

Opinion: Welch Gets King's Ransom in Retirement Benefits from GE
Excerpt: "When John F. Welch Jr. retired as chief executive of General Electric Co., he cast off two decades of corporate responsibilities. But not the perks. The company is still paying for around-the-clock access to a GE-owned Boeing 737, an apartment on New York's Central Park West, a limited edition 2003 Mercedes-Benz SLR and tickets to Wimbledon tennis matches, Red Sox baseball games and the Metropolitan Opera." (Washington Post)

Newly Posted or Renewed Job Openings - Post a Help Wanted Ad

Employee Benefits Attorneys Needed
for Warner Norcross & Judd LLP in MI

Actuary in Eugene, Oregon
for Summit Benefit & Actuarial Services, Inc. in OR

Administrator Opportunity
for Benefit Consultants, LLC in AL

Newly Posted Conferences (Post Yours!)

The 403(b)/457 Retirement Plan Design and Management Conference
in DC on September 30, 2002
presented by World Research Group

HIPAA Privacy Requirements: Meeting the Compliance Deadline
in ALL STATES on September 18, 2002
presented by Thompson Publishing Group, Inc.

Newly Posted Press Releases

George Morrison and David Hanisco, formerly of Redwood Administrators, Inc., establish Continental Benefits Group, Inc.
(Continental Benefits Group, Inc.)

George M. Morrison establishes The Law Firm of G.M. Morrison, P.C., an employee benefits law firm.
(Law Firm of G.M. Morrison, P.C.)

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