Colorado ERISA Lawyer & Attorney : Vicki Johnson : Davis Graham & Stubbs Law Firm : Serving Denver, Boulder, Colorado Springs, Fort Collins

The United States Department of Labor has proposed regulations enhancing the disclosure requirements of service plan providers to plan fiduciaries concerning fees charged and conflicts of interests that may impact the service provider's performance.  The Department of Labor also is considering an exemption for fiduciaries who entering into a contract with service providers who fail to meet their disclosure obligations without the knowledge of the fiduciary.

The proposed regulations are under ERISA section 408(b)(2), 29 U.S.C. § 1108, which exempts certain contracts or arrangements between plans and service providers that would otherwise be prohibited transactions under ERISA section 406, 29 U.S.C. § 1106, if such contracts or arrangements are reasonable.  The proposed regulations address the disclosure requirements applicable to "reasonable contracts or arrangements."  These disclosures in general are (a) the compensation received by the service provider, directly or indirectly, and (b) any conflicts of interest that may arise in connections with the service provider's services to the plan.

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The San Francisco Chronicle reported today that Judge Charles Breyer has issued a nationwide preliminary injunction barring enforcement of the new "no-match rules."   The injunction will remain in effect until the trial of the underlying case or if it is reversed on appeal.  Judge Breyer's opinion can be found on Pacer and the case is American Federal of Labor v. Michael Chertoff, N.D. Calif. Case No. 3:07-CV-04472-CRB.

If the no-match rule had been enforced, the Department of Homeland Security would have immediately issued no-match packets to 140,000 employers identifying no matches for 8 million employees.  The employers would have been required to comply with the rule (described in my earlier post on this issue) within 90 days.  The opinion describes the anticipated difficulties in complying with the rule within 90 days.

An important issue for employers to be concerned about is whether receipt of a no-match letter issued under the old rule still can be interpreted as constructive knowledge that the employer is employing an illegal worker.  Judge Breyer refused to hold that the receipt of a no-match letter could never constitute constructive knowledge of employing an illegal worker.

The court also held that the rule did not contravene the governing statute, but its adoption raised serious questions regarding whether the rule was arbitrary and capricious, an exercise of ultra vires authority, and promulgated in violation of the Regulatory Flexibility Act.

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The LA times has reported that  On October 1, 2007, a United States District Judge in Northern California extended for ten days a temporary restraining order prohibiting the enforcement of the "no match" rules.  The rules permit immigration authorities to use mismatched social security numbers to go after employers who may have hired undocumented workers.

The no match rule, which presently is found at 72 Fed. Reg. 45,611, is intended to reduce improper use of falsified social security numbers.   See 8 C.F.R. Part 274a.  The National Immigration Law Center provides an online toolkit on how to deal with the rule, including a link to the rule itself. 

Under the rule, if the social security number on an employee's W-2 form is inconsistent with the records at the Social Security Administration (SSA), the SSA will write a letter to the employer requiring it to fire the employee if the employee's status cannot be verified within 90 days of the notice.  If the employer fails to fire an unverified employee, the employer could be subject to a $10,000 fine, and criminal and civil sanctions. 

The rule includes a safe harbor for employers who make efforts to comply.  An employer may be charged with constructive knowledge that they have hired an illegal worker if they receive a no-match letter.

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On September 25, 2007, the United States Supreme Court granted certiorari to review E.E.O.C. v. Jefferson County Sheriff's Department, 467 F.3d 571 (6th Cir. 2006).   This case involved an age-discrimination lawsuit concerning a disability retirement plan.   The retirement plan disqualifies employees from receiving disability-retirement benefits if they are still working and have reached the normal retirement age at the time they become disabled.  The plan purportedly calculates disability retirement benefits so that older workers who are eligible to receive disability benefits receive lower monthly benefit payments than younger workers.  Specifically, if a person is not eligible for retirement, his benefits are enhanced by adding remaining years of service until retirement.  In contrast, the benefits of a person eligible for retirement are calculated based on actual years of service.  In some situations, this difference in treatment apparently results in higher benefits for the person who becomes disabled prior to his normal retirement date.

The Sixth Circuit held that the EEOC established a prima facie case of age discrimination because this difference in benefits is facially discriminatory against older workers.

The individual who filed the charge with the EEOC was denied disability retirement because he had reached the age of retirement at the time he was disabled, in his case 55-years of age because he was a sheriff, which the plan defined as a hazardous position. 

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In Beck v. Pace International Union, No. 05-1448 (June 2007), the United States Supreme Court held that an employer who is a plan administrator and plan sponsor for a single-employer plan does not have a fiduciary obligation when considering whether to terminate an employee benefits plan governed by ERISA to consider merger into another plan unless the plan documents require it to do so. 

The employer, which was going through bankruptcy, realized that it could recoup $5 million dollars for the benefit of its creditors if it terminated the plan and purchased annuities to cover the plan's obligations to the participants.  The Supreme Court said that the employer's purchase of annuities comported with the provision of ERISA setting forth permissible methods of terminating a single-employer plan and distributing assets, 29 U.S.C. section 1341(b)(3)(A).

The court made another useful point concerning ERISA fiduciary duties when it noted that although the employer acted as the plan sponsor and plan administrator, ERISA fiduciary duties are implicated only when the employer acts as the plan administrator.  When the employer acts as a plan sponsor, it is acting as a settlor, which is immune from ERISA's fiduciary obligations.

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The Wall Street Journal is reporting today that the SEC has charged Brocade's CFO, Michael Byrd, with fraud related to his role in Brocade's stock options backdating.

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The National Law Journal reports today that the American Bar Association is recommending that mandatory retirement ages for lawyers be abolished.  I probably sound a bit insensitive but I'm curious why this is an important issue for the ABA?  Are a number of lawyers complaining that after clocking in enormous billable hours they want to continue working for their large law firms after 65?  Me, I hope to retire by then....

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According to an article in The Recorder, the SEC plans to file civil charges against the former General Counsel of KLA-Tencor, Lisa Berry, for her role in stock options backdating at that company.  The SEC has said it will file these charges by September 30, 2007.

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Public employees who take bribes or otherwise receive cash or other gifts in exchange for taking an action within their official exercise of power may be subject to prosecution under 18 U.S.C. § 1346, which could result in jail time.  This type of crime is called "Honest Services Fraud."

The Seventh Circuit Court of Appeals held in U.S. v. Bloom, 149 F.3d 649 (7th Cir. 1998), that the misuse of office for private gain is the line that separates run of the mill breaches of fiduciary duty from a federal crime.  Put another way, this line separates a civil lawsuit (a breach of fiduciary duty) from a federal lawsuit with the potential for jail time.

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