BENEFITS BYTE

June 21, 2004
BB 04—68

In this issue:

  • Supreme Court Rules Unanimously in Favor of ERISA Preemption
  • Council Files Amicus Brief in Settlor Function Case
  • Treasury Issues Guidance on Health Savings Accounts and State Mandates

Supreme Court Rules Unanimously in Favor of ERISA Preemption

The Supreme Court issued on June 21 a 9-0 decision in two related cases involving ERISA preemption of state tort laws in actions by health plans when making benefits decisions: Aetna Health Inc v. Davila and Cigna Healthcare, Inc. v. Calad. The Court ruled that the federal remedies available under ERISA take precedence over remedies available under state laws when a health plan makes a benefits determination, including those that involve making a medical judgment. The Council, representing employers, joined America's Health Insurance Plans (AHIP), representing health plan companies, in filing an amicus brief supporting ERISA preemption of state laws in cases involving benefits determinations. In a statement issued following the Court's action, Council President James Klein welcomed today's decision and said, "It is critical employers feel confident that ordinary benefits decisions will not subject them to the extreme costs associated with often unlimited remedies under many state laws."

Justices Ginsberg and Breyer joined the Court in its ruling but filed a concurring opinion that could give encouragement to supporters of patients' rights legislation. Their concurring opinion urged Congress to "revisit what is an unjust and increasingly tangled ERISA regime." Senator Edward Kennedy (D-MA) and Rep. John Dingell (D-MI) previously announced that, should the Court decide in favor of ERISA preemption, they would introduce legislation to broaden the remedies available to ERISA plan participants, possibly similar to the legislation they promoted during the Patients' Bill of Rights debate. For more information, please contact Susan Relland, Council health care legal counsel, at (202) 289-6700.

Council Files Amicus Brief in Settlor Function Case

The Fourth Circuit Court of Appeals has accepted an amicus brief that the Council filed, along with the U.S. Chamber of Commerce, in Tatum v. RJ Reynolds Tobacco Co. The case involves the "fiduciary" versus "settlor" function of ERISA and is likely to be important to employers that sponsor 401(k) plans because the plaintiff's position erodes the traditional insulation provided to plan sponsors under the settlor function doctrine of ERISA. The U.S. Department of Labor (DOL) has filed a potentially damaging brief aligned with the plaintiff's position.

The case arose out of the spin-off of R.J. Reynolds Tobacco Company ("RJRT") from RJR Nabisco and the consequent amendment of the RJR Nabisco Capital Holdings (401(k)) Plan to create two plans. Before the spin-off, participants in the 401(k) plan could invest in, among others, two company stock funds. Pursuant to the terms of the amendment, the company stock in the accounts of RJRT Plan's participants were frozen and subsequently liquidated. The stock rose significantly between the time it was frozen and then liquidated. A class action was filed alleging breach of fiduciary responsibility and seeking compensation for alleged losses due to the freeze and forced liquidation.

Defendants argued, among other things, that plan amendments and actions taken pursuant to those amendments were settlor acts not subject to ERISA's fiduciary rules because the amendments left the fiduciaries without discretion to prevent the liquidation. The court found in favor of RJR and the plaintiffs have appealed to the Fourth Circuit. The Council's amicus brief argues that amending the plan and carrying out the terms of the amendment were both settlor functions and therefore not subject to fiduciary duty. A Fourth Circuit decision in favor of RJR could prove very useful to plan sponsors in a variety of investment-related circumstances. For more information, please contact Susan Relland, Council health care legal counsel, at (202) 289-6700.

Treasury Issues Guidance on Health Savings Accounts and State Mandates

On June 21, the Treasury Department issued Notice 2004-43, which provides transition relief for individuals in states where qualified high deductible health plans (HDHPs) under the Health Savings Account (HSA) rules are not available because state laws require health plans to provide certain benefits without regard to a deductible or below the minimum annual deductible. Under the HSA statute, to be eligible to contribute to an HSA an individual must be enrolled in a qualified HDHP that does not provide benefits below a $1,000 (for individual) or $2,000 (for family) deductible except for preventive care. Some states require coverage by insured plans for amounts below the deductible. In such states, the general rule is that an individual could not have an insured qualified HDHP. However, Treasury's new rule allows individuals in states with mandates already in place on January 1, 2004, to contribute to an HSA despite the state mandate until January 1, 2006. This gives the state legislatures time to amend the statutes to repeal the mandates. For more information, please contact Susan Relland, Council health care legal counsel, at (202) 289-6700.

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The American Benefits Council is the national trade association for companies concerned about federal legislation and regulations affecting all aspects of the employee benefits system. The Council's members represent the entire spectrum of the private employee benefits community and either sponsor directly or administer retirement and health plans covering more than 100 million Americans.