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Association Group Coverage Changes
Trade Associations in Kentucky are being asked to show that they meet ERISA “bona fide association” requirements in order to continue to provide group health insurance for their members under health reform requirements effective in 2014. Such group health insurance may be a more affordable option for some businesses as new health reform requirements begin to take effect.
In a nutshell, ERISA requires that an association be considered an “employer” to sponsor a group health plan at the association level. In order to qualify as an “employer”, an association must meet bona fide association requirements, including like-industry and participant control requirements. By sponsoring a group health insurance plan at the association (rather than the individual employer) level, associations are able to pass along to their employer members reduced coverage premiums available under large group plans.
Important health reform changes are applicable to insurance plan renewals occurring on or after January 1, 2014. Trade associations should act now to confirm that they are structured to be eligible to purchase group insurance coverage, if their member benefits include health care coverage. If you need help restructuring your association for this purpose or have questions, contact Clay Wortham in the Lexington office. He can be reached at cwortham@mmlk.com or at (859) 231-8780.
Clay B. Wortham is an Associate of McBrayer, McGinnis, Leslie & Kirkland, PLLC. Mr. Wortham concentrates his practice in healthcare law and is located in the firm’s Lexington office. He can be reached at cwortham@mmlk.com or at (859) 231-8780.
This article is intended as a summary of state law and does not constitute legal advice.
Plan Documents Rule Ineffective to Protect ERISA Administrators Against Claims by Adverse Spouses
By now, it is abundantly clear that administrators of ERISA pension or life-insurance plans are required to pay death benefits to the spousal beneficiary identified in the employee’s plan documents even when the employee has divorced the spouse identified at the time the benefits become payable. The so called “Plan Documents Rule” can have a harsh effect as it applies even when the former spouse has waived all interest in an employee’s ERISA plan during state court divorce proceedings. See McMillan v. Parrott, 913 F.2d 310 (6th Cir. 1990); Kennedy v. Plan Administrator for DuPont Savings and Investment Plan, 555 U.S. 285 (2009). The Supreme Court has rationalized strict interpretation of the Plan Documents Rule, in part, because it establishes a uniform administrative scheme and simplifies the duties incumbent upon a plan administrator in making distributions.
In a recent decision, IPFW Pacific Coast Pension Fund v. Lee, No. 10-6433, 2012 WL 447490 (6th Cir. Feb 13, 2012), the Sixth Circuit seemingly departed from the rationale typically used to support the Plan Documents Rule. In IPFW Pacific Coast Pension Fund, an eligible employee, Wayne Lee, properly designated his second wife as his spousal beneficiary in his employer sponsored pension fund. After Mr. Lee’s death, it became apparent that Mr. Lee had never finalized his divorce from his first wife. In overturning the decision of the district court, the Sixth Circuit opined that the rights of Mr. Lee’s respective wives should be determined based upon the validity of their marriage to Mr. Lee as determined by applicable state law. According to dicta from the Sixth Circuit opinion, the likely outcome in the district court will be that Mr. Lee’s second wife, specifically designated in plan documents, will be denied benefits under the plan because her marriage to Mr. Lee was void under applicable state law.
Nothing in the plan documents could have prepared the administrator at IPFW for making a distribution to the unknown first wife in this instance. In fact, the decision from the Sixth Circuit seemingly requires a plan administrator to make a determination as to the validity of an employee’s second marriage, under applicable state law, where two claimants contend that they have a right to the same spousal benefits. In this case, IPFW initiated an interpleader action to determine the rights of the claimed beneficiaries. While this fact scenario is certainly unique, the Court’s decision essentially requires an administrator of an ERISA plan to do the same when questions with regard to the validity of an employee’s marriage are raised by adverse claimants.
Benjamin L. Riddle is an associate in the Louisville, Kentucky office. Mr. Riddle is a member of the firm’s Litigation team, where he focuses his practice on employment law, commercial disputes and personal injury matters. He graduated from Indiana University’s Kelley School of Business in 2000 and obtained his J.D. from Indiana University, Bloomington in 2003. He is a member of the Illinois, Louisville and Kentucky Bar Associations and is admitted to practice in the U.S. District Courts in the Northern District of Illinois and the Eastern and Western Districts of Kentucky and the Sixth Circuit Court of Appeals. Mr. Riddle can be reached at (502) 327-5400, ext. 305 or briddle@mmlk.com
