Amicus Curiae Brief — Raymond B. Yates, MD, PC Profit Sharing Plan v. Hendon
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No. 02-458 AUG | [ a S |
Ne OTe
In The
Supreme Court of the United States
¢
RAYMOND B. YATES, M.D., P.C. PROFIT SHARING
PLAN AND RAYMOND B. YATES, TRUSTEE,
Petitioners,
Vv.
WILLIAM T. HENDON, TRUSTEE,
Respondent.
¢
On Writ Of Certiorari To The
United States Court Of Appeals
For The Sixth Circuit
¢
BRIEF OF UNUMPROVIDENT CORPORATION AS
AMICUS CURIAE IN SUPPORT OF PETITIONERS
¢
WILLIAM J. KAYATTA, JR. MARK E. SCHMIDTKE*
BYRNE J. DECKER *Counsel of Record
PIERCE ATWOOD HOEPPNER WAGNER &
One Monument Square Evans LLP
Portland, ME 04101 103 East Lincolnway
(207) 791-1100 Valparaiso, IN 46384
(219) 465-7368
COCKLE LAW BRIEF PRINTING CO. (800) 225-6964
OR CALL COLLECT (402) 342-2831
QUESTION PRESENTED
Amicus will address the following question:
Whether a working owner (in this case, a sole share-
holder of a corporate employer) is a participant in a plan
governed by the Employee Retirement Income Security Act
of 1974, as amended, 29 U.S.C. §1001, et seg. (“ERISA”)
where non-owner employees of the corporation are also
covered under the same plan.
ii
TABLE OF CONTENTS
Page
QUESTION PRESENTED...................ssssssssccscsesessees i
BN SII ccccscscscccccenesevvesesescoesescoceseses ii
TABLE OF AUTHORITIES ..................ccccsssseeecveceeees iv
INTEREST OF THE AMICUS CURIAE.................... 1
SUMMARY OF ARGUMENT.......0.........ccccceceseeseeeeeees 3
SITET sith isnstitdnimincotaciiednnninensenseeneqsenes 4
A. A BENEFIT CLAIMANT’S STATUS AS A
PARTICIPANT OR BENEFICIARY IMPACTS
MULTIPLE ISSUES UNDER ERISA SUCH
AS STANDING TO SUE, THE AVAILABILITY
OF ERISA REMEDIES, AND PREEMPTION
OF STATE LAW REMEDIEG. ...................000088
B. THE DEPARTMENT OF LABOR DETER-
MINED LONG AGO THAT WORKING OWN-
ERS ARE PARTICIPANTS WHERE THEY
ARE COVERED BY AN EMPLOYEE BENE-
FIT PLAN THAT INCLUDES NON-OWNER
SIE IEIIIIID ccnenscsshieeveseesecessccossosscosssccosecsocse
C. THE MAJORITY OF CIRCUIT COURTS
HOLD THAT WORKING OWNERS HAVE
STANDING TO SUE FOR PLAN BENEFITS
UNDER ERISA, CONCLUDING THAT SUCH
A RESULT IS NECESSARY TO ENSURE
UNIFORM REGULATION OF EMPLOYEE
BENEFIT PLANS AND CONSISTENT AP-
PLICATION OF PLAN TERMG................000008
iii
TABLE OF CONTENTS - Continued
Page
D. THE SIXTH CIRCUIT DECISION ON RE-
VIEW CREATES INCONSISTENCY IN THE
REGULATION OF ERISA PLANS AND IN
THE APPLICATION OF ERISA PLAN
TERMS, CONTRARY TO THE INTENT OF
GISUEEEEEEEIS cccccccccccsescccccceseccosecrcncessocoososesseoes 17
1. Congress Enacted ERISA To Establish
Uniform Regulation Of Employee Benefit
Plans In Order To Reduce The Costs Of
Administering Such Plans And To
Thereby Make Such Plans Available To A
Greater Number Of Employees. .............. 17
2. The Decision Below Creates Inconsis-
tency In The Regulation And Application
Of ERISA Plan Terms And Is Contrary
To Congressional Intent For Uniform
Regulation And Lower Benefit Costs. ...... 18
E. A “BRIGHT LINE” RULE THAT WORKING
OWNERS ARE PARTICIPANTS IS THE
ONLY APPROACH CONSISTENT WITH THE
STATUTORY LANGUAGE OF ERISA, THIS
COURTS PRECEDENTS AND CONGRESS’
INTENT TO PROVIDE PLAN ADMINISTRA-
TORS WITH CONSISTENCY AND PRE-
DICTABILITY IN DETERMINING WHO IS A
PARTICIPANT UNDER THE PLAN. .............. 22
CFR cocccccccccccccccccccccccccccccccvcccsscccseoonossoooesss 29
iv
TABLE OF AUTHORITIES
Page
CASES:
Agrawal v. Paul Revere Life Ins. Co., 205 F.3d 297
REE LA eee ae nly 2,7,17
Black & Decker Disability Plan v. Nord, __ U.S. __,
123 S.Ct. 1965, 155 L.Ed.2d 1034 (2003) .........ccccceeeeeeeees 11
Chevron U.S.A., Inc. v. Natural Resources Defense
Council, Inc., 467 U.S. 837 (1984) ...........ccccccccceceseeseeeee 11, 12
Clackamas Gastroenterology Assocs., P.C. v. Wells, ___
US. __, 123 S.Ct. 1673, 155 LEd2d 615
Pieri stciiisnchasiccsiestsantiietaniadenniinttetmatiaiitaiasenaetiaiiaiaianinn! 12, 24, 25, 26, 27
Cvelbar v. CBI Illinois, 106 F.3d 1368 (7th Cir.), cert.
Sr ie 12
Engelhardt v. The Paul Revere Life Ins. Co., 139 F.3d
I 3, 7, 16
Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101
Seachem lita tensa ibaa 20
Ft. Halifax Packing Co., Inc. v. Coyne, 482 U.S. 1
Siar erectile ialaattiiaaiatniaaiaiti 17
Fugarino v. Hartford Life and Acc. Ins. Co., 969 F.2d
178 (6th Cir. 1992), cert. denied, 507 U.S. 966
Siar censetcessacenianiieiiiiteneniitatieceatataenidettataataataaiataaaaiatasitaaiaceaal 1, 6,7
Giardono v. Jones, 867 F.2d 409 (7th Cir. 1989)...........cccccccccoee 7
Gilbert v. Alta Health & Life Ins. Co., 276 F.3d 1292
ee a tian nities neniientenincinienttibenneceatiaiei 14, 15
Harper v. American Chambers Life Ins. Co., 898 F.2d
IIIT TTT isnsesiscsesisiinndinsinesnnieniesiadenenensteisiiieiaiiaanianiadi 7,15
Hendon v. Yates, 287 F.3d 521 (6th Cir. 2002).................... 2,16
Vv
TABLE OF AUTHORITIES — Continued
Page
Kwatcher v. Mass. Service Employees Pension Fund,
ge 2, 6,7
Lockheed Corporation v. Spink, 517 U.S. 882 (1996) ............ 25
Madonia v. Blue Cross & Blue Shield of Virginia, 11
F.3d 444 (4th Cir. 1993), cert. denied, 511 U.S. 1019
TTT ccncnpatesaniiiiienentdemuspeeinmaiaeininaieemteimemeel 7, 12, 13, 14, 27
Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 54
ITT ososechiciiiaheh chats nmmaerassiat ieee iiabaaesaibae 3,6
Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318
eee ae 23, 24, 25, 27, 28
Norris v. Citibank, NA Disability Plan, 308 F.3d 880
21
Perlman v. Swiss Bank Long Term Disability Plan,
oe ft, > 21
Peterson v. American Life & Health Ins. Co., 48 F.3d
404 (9th Cir.), cert. denied, 516 U.S. 942 (1995)............ 7,15
Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41 (1987)............... 3,6
Prudential Ins. Co. of America v. Doe, 76 F.3d 206 (8th
eee 7, 14,15
Ritter v. Massachusetts Cas. Ins. Co., 439 Mass. 214,
Cf 6
Robinson v. Linomaz, 58 F.3d 365 (8th Cir. 1995)........ 7, 14, 15
Rush Prudential HMO, Inc. v. Moran, __ U.S. __,
122 S.Ct. 2151, 153 L.Ed.2d 375 (2002) ...............cceceeeeees 3,6
Santino v. Provident Life and Acc. Ins. Co., 276 F.3d
Se 7,16
Shaw v. Delta Air Lines, 463 U.S. 85 (1983) ........ 17, 18, 19, 26
vi
TABLE OF AUTHORITIES — Continued
Page
Sipma v. Massachusetts Cas. Ins. Co., 256 F.3d 1006
a eh eiiteinihicesintiticbinaicinieienlasieiiaibaaiiitsitiailiasistarteaiaia 2,7
Varity Corporation v. Howe, 516 U.S. 489 (1996)............ 17,18
Vega v. National Life Ins. Services, Inc., 188 F.3d 287
TE eS 7, 13,14
Wolk v. Unum Life Ins. Co. of America, 186 F.3d
352 (3d Cir. 1999), cert. denied, 528 U.S. 1076
Sua hasrsnecrnnannnsiesesinmnnmesnnmenemmmnenaiomseieanimenatel 2,7, 14,15
STATUTES:
TTT 15
ee TE inssnnernicrrninistnerrnienntennianinticipsinansaaiinaslnbatatanaisasii 5
TE 22
ES nn ee a EE 10
es I rnirecscersicicitnainienenertiiatrinanaianserpersiapsaniaaisenmaaissl 8
I eicceaniansinsineetasenreseseniriicentialeniniaceatatenteditii 9
TT 23
RULES:
INUIT cxsnintsinenshinnitacicmeniantenieseiemeeneinmnaietieess 1
Ie 1
MISCELLANEOUS:
DOL Reporting and Disclosure Regulations, 40 Fed.
Reg. 34525, 34528 (August 15, 1975).............ccccessseesesseeeeees 10
1
INTEREST OF THE AMICUS CURIAE'
UNUMProvident Corporation is the parent holding
company of UNUM Life Insurance Company of America,
The Paul Revere Life Insurance Company, and Provident
Life and Accident Insurance Company (collectively, the
“UNUMProvident Companies”). The UNUMProvident
Companies are three of the largest disability insurance
carriers in the United States. They are authorized to issue
individual and group disability policies in all 50 States.
Hundreds of small employers purchase group and/or
individual disability policies from the UNUMProvident
Companies for the purpose of funding their ERISA-
governed employee disability plans. In most cases, the
business owner is covered under the same policy and/or
the same policy form as the non-owner employees.
When there is a dispute over the payment of benefits
under these policies, some jurisdictions (including the
Sixth Circuit) hold that claims by working owners are
governed by state law whereas ERISA preempts these
same state law claims when they are brought by non-
owner employees to recover benefits under the same plan.
See, e.g., Fugarino v. Hartford Life and Acc. Ins. Co., 969
F.2d 178 (6th Cir. 1992), cert. denied, 507 U.S. 966 (1993)
(sole proprietor does not have standing to sue for benefits
' Pursuant to Supreme Court Rule 37.3, the parties have consented
to the filing of this Brief amicus curiae. Their letters of consent have
been filed with the Clerk of this Court. Pursuant to Supreme Court
Rule 37.6, Amicus states that this brief was not authored in whole or in
part by counsel for a party, and no person or entity, other than Amicus,
made a monetary contribution for the preparation or submission of this
brief.
2
under ERISA even though he participated in ERISA-
governed health benefit plan that also covered non-owner
employees); Kwatcher v. Mass. Service Employees Pension
Fund, 879 F.2d 957 (1st Cir. 1989) (same result involving
sole shareholder). The application of disparate bodies of
state and federal law to the same benefit plan results in
the potential for inconsistent and even conflicting applica-
tions of the same policy terms. Inconsistent and conflicting
regulation ultimately increases the administrative and
litigation costs of these plans, thereby harming the very
employees that Congress sought to protect when it enacted
ERISA.
This case arose out of a bankruptcy dispute and
involves the question of whether Dr. Yates had standing to
enforce the anti-alienation provision in his ERISA plan.
Hendon v. Yates, 287 F.3d 521, 525 (6th Cir. 2002). How-
ever, this Court’s decision will also determine whether a
working owner has standing under ERISA, §502(a)(1)(B)
to recover benefits under an ERISA-governed plan and
whether any state law claims asserted by the working
owner are preempted by ERISA. This is the issue that the
UNUMProvident Companies and the employee benefit
plans that they insure face on an ongoing basis in the
lower federal and state courts. Indeed, several of the
circuit court holdings that the petitioners relied on to
establish a split in circuit court authority justifying a writ
of certiorari involved claims for benefits under disability
policies issued to ERISA plans by one of the UNUMProvi-
dent Companies or by other disability insurance carriers.
See, e.g., Sipma v. Massachusetts Cas. Ins. Co., 256 F.3d
1006 (10th Cir. 2001); Agrawal v. Paul Revere Life Ins. Co.,
205 F.3d 297 (6th Cir. 2000); Wolk v. Unum Life Ins. Co. of
America, 186 F.3d 352 (3d Cir. 1999), cert. denied, 528 U.S.
Poy
3
1076 (2000); Engelhardt v. The Paul Revere Life Ins. Co.,
139 F.3d 1346 (11th Cir. 1998). By virtue of their extensive
involvement in providing insured benefits to ERISA-
governed disability plans, the UNUMProvident Compa-
nies have a strong interest in preserving the uniform
regulation of the employee welfare benefit plans that they
insure.
+
SUMMARY OF ARGUMENT
The primary purpose of Congress in enacting ERISA
was to regulate employee benefit plans under a uniform
body of federal law. Congress accomplished this purpose in
two principal ways. First, it included a broad preemption
clause which was “designed to ‘establish pension plan
regulation as exclusively a federal concern.’” Pilot Life Ins.
Co. v. Dedeaux, 481 U.S. 41, 46 (1987). Second, Congress
created a “comprehensive civil enforcement scheme” that
is “one of the essential tools for accomplishing the stated
purposes of ERISA.” Jd. at 52. This Court has held on
several occasions that ERISA’s civil enforcement scheme is
the exclusive means to remedy disputes arising from the
processing of ERISA benefit claims. Pilot Life, 481 U.S. at
54; Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 54 (1987).
Most recently, this Court noted that the civil enforcement
scheme of ERISA is an example of an “overpowering
federal policy” that employee benefit plan regulation be
uniformly federal in character. Rush Prudential HMO, Inc.
v. Moran, __ U.S. ___, 122 S.Ct. 2151, 2164, 153 L.Ed.2d
375, 396 (2002).
The decision below that working owners are not
participants under ERISA and that they have no standing
4
to sue under ERISA’s civil enforcement scheme, violates
congressional intent for uniform federal regulation of
employee benefit plans. In the context of a suit for plan
benefits, the holding results in a disparity between the
state law remedies that are available to the working
owner and the federal law remedies that are available to
non-owner employees. This is exactly what Congress
sought to avoid: regulation of the same plan by multiple
bodies of potentially conflicting laws. Fractured and
conflicting regulation of employee benefit plans also leads
to another result that Congress sought to avoid — in-
creased costs of administering ERISA plans and the
possibility that such plans will become so expensive that
employers will cease to provide them in the first place. All
of these problems are cured when working owners are
considered participants under ERISA and have the same
remedies as non-owner employees who are covered under
the same benefit plan and who are subject to the same
plan terms. The Sixth Circuit decision should be reversed.
+
ARGUMENT
A. A BENEFIT CLAIMANT’S STATUS AS A PAR-
TICIPANT OR BENEFICIARY IMPACTS MUL-
TIPLE ISSUES UNDER ERISA SUCH AS
STANDING TO SUE, THE AVAILABILITY OF
ERISA REMEDIES, AND PREEMPTION OF
STATE LAW REMEDIES.
Dr. Yates’ status as a participant under ERISA con-
trols whether the anti-alienation provision of his ERISA
plan applies to his interest in the plan. However, the
question of a working owner’s status as a participant or a
beneficiary also arises in the context of whether the owner
has standing to sue for ERISA plan benefits and the
——— ir
5
related question of whether any state law claims brought
by the owner are preempted by ERISA. Thus, a decision
regarding Dr. Yates’ participant status in the context of his
bankruptcy dispute will also determine a working owner’s
participant status as it affects the administration of
benefits under thousands of ERISA plans on a daily basis.
Standing to sue under ERISA is crucial to determin-
ing what federal remedies are available to a working
owner. ERISA provides federal courts with jurisdiction of
ERISA suits, but only where the plaintiff has a specific
status under the statute, such as status as a participant or
beneficiary. ERISA, §502(e)(1).2 Section 502(a\1)(B)
provides an express cause of action for the recovery of plan
benefits, but such a cause of action is expressly reserved
only to participants and beneficiaries.’ Some lower courts
? Section 502(e)(1) (29 U.S.C. §1132(e)(1)] states in pertinent part
that “[e)xcept for actions under subsection (a)(1)(B) of this section, the
district courts of the United States shall have exclusive jurisdiction of
civil actions under this title brought by the Secretrary or by a partici-
pant, beneficiary, fiduciary, or any person referred to in section
101(f(1). State courts of competent jurisdiction and district courts of
the United States shall have concurrent jurisdiction of actions under
paragraphs (1)(B) and (7) of subsection (a) of this section.”
* The statute provides that “(a] civil action may be brought — by a
participant or beneficiary ... to recover benefits due to him under the
terms of his plan, to enforce his rights under the terms of the plan, or to
clarify his rights to future benefits under the terms of the plan.” ERISA,
§502(a1B) (emphasis added). The statute defines a “participant” as:
“any employee or former employee of an employer ... who is or may
become eligible to receive a benefit of any type from an employee
benefit plan which covers employees of such employer. ... ” ERISA,
§3(7). The statute defines a “beneficiary” as: “a person designated by a
participant, or by the terms of an employee benefit plan, who is or may
become entitled to a benefit thereunder.” ERISA, §3(8). The language of
the statute makes it clear that status as either a participant or a
(Continued on following page)
6
that have held that working owners do not have standing
to sue for benefits under ERISA also hold that ERISA
simply does not apply to these claims even though they
arise out of an ERISA-governed benefit plan. See, e.g.,
Fugarino v. Hartford, 969 F.2d at 186; Kwatcher, 879 F.2d
at 965-66.
These same courts have also held that a working
owner’s standing to sue under ERISA controls what state
law remedies are available to the working owner. Where a
dispute arises out of the administration of benefits under
an ERISA plan, this Court has held that ERISA’s remedies
are exclusive. See, e.g., Moran, supra; Pilot Life, supra;
Taylor, supra. Any state law claims that purport to sup-
plement or supplant ERISA’s exclusive remedies are
preempted, even where they are otherwise “saved” from
preemption under ERISA’s express preemption clause. Id.
Even so, according to some lower courts, where a working
owner does not have standing to sue under ERISA’s civil
enforcement scheme, state law remedies are not pre-
empted by ERISA. Fugarino, supra; Kwatcher, supra. See
also Ritter v. Massachusetts Cas. Ins. Co., 439 Mass. 214,
786 N.E.2d 817 (2003) Goint shareholder did not have
standing to sue for disability benefits under ERISA and
her state law claims against ERISA plan insurer were not
preempted).
In summary, although not directly presented by the
decision on review, the broader question of a working
owner’s standing to sue for plan benefits under
beneficiary is sufficient to grant standing to pursue a suit for plan
benefits.
7
§502(a)(1B) must be considered in this case. A working
owner's standing to sue for plan benefits under ERISA is
the most common context in which the standing issue
arises. Compare Santino v. Provident Life and Acc. Ins.
Co., 276 F.3d 772 (6th Cir. 2001) (joint shareholder had
standing to sue for benefits as participant); Sipma v. Mass.
Casualty, supra (same); Vega v. National Life Ins. Services,
Inc., 188 F.3d 287 (5th Cir. 1999) (en banc) (husband and
wife, as sole shareholders, had standing to sue for benefits
as participants); Engelhardt v. Paul Revere, supra (joint
shareholder has standing to sue for benefits as benefici-
ary); Wolk v. UNUM, supra (partner had standing to sue
for plan benefits as beneficiary); Prudential Ins. Co. of
America v. Doe, 76 F.3d 206 (8th Cir. 1996) (joint share-
holder has standing to sue for benefits as beneficiary);
Robinson v. Linomaz, 58 F.3d 365 (8th Cir. 1995) (husband
and wife, as sole shareholders, had standing to sue for
benefits as beneficiaries); Peterson v. American Life &
Health Ins. Co., 48 F.3d 404 (9th Cir.), cert. denied, 516
U.S. 942 (1995) (partner has standing to sue for benefits
as beneficiary); Madonia v. Blue Cross & Blue Shield of
Virginia, 11 F.3d 444 (4th Cir. 1993), cert. denied, 511 US.
1019 (1994) (sole shareholder had standing to sue for plan
benefits as participant); Harper v. American Chambers
Life Ins. Co., 898 F.2d 1432 (9th Cir. 1990) (partner has
standing to sue for plan benefits as beneficiary) with
Agrawal v. Paul Revere, supra (sole shareholder does not
have standing to sue for plan benefits, either as partici-
pant or as beneficiary); Fugarino v. Hartford, supra
(proprietor does not have standing to sue for plan benefits
as participant); Kwatcher v. Mass. Service, supra (sole
shareholder does not have standing to sue for plan bene-
fits as participant); Giardono v. Jones, 867 F.2d 409 (7th
Cir 1989) (proprietor does not have standing to sue for
8
plan benefits as participant). This standing issue affects
every ERISA plan that covers working owners.
B. THE DEPARTMENT OF LABOR DETERMINED
LONG AGO THAT WORKING OWNERS ARE
PARTICIPANTS WHERE THEY ARE COVERED
BY AN EMPLOYEE BENEFIT PLAN THAT IN-
CLUDES NON-OWNER EMPLOYEES.
Unlike some federal discrimination statutes such as
the Americans With Disabilities Act, ERISA does not
include any “small employer exemption” nor is there any
evidence that Congress intended to exclude small employ-
ers from ERISA. Consistent with congressional intent that
ERISA have broad application to employers of all sizes, the
Department of Labor (“DOL”) issued a regulation defining
the term “employee benefit plan” under ERISA. Under the
regulation, plans with as few as one employee-participant,
are governed by ERISA:
For purposes of Title I of the Act and this chap-
ter, the term ‘employee benefit plan’ shall not in-
clude any plan, fund, or program . . . under which
no employees are participants covered under the
plan ... For example, a so-called ‘Keogh’ or ‘H.R.
10’ plan under which only partners or only a sole
proprietor are participants covered under the
plan will not be covered under Title I. However, a
Keogh plan under which one or more common
law employees in addition to the self-employed
individuals are participants covered under the
plan, will be covered under Title I.
29 C.F.R. §2510.3-3(b) (emphasis added). For purposes of
determining whether a plan covers at least one employee,
ses
9
a sole owner and his/her spouse are not considered em-
ployees under the regulation:
For purposes of this section ... [aJn individual
and his or her spouse shall not be deemed to be
employees with respect to a trade or business,
whether incorporated or unincorporated, which
is wholly owned by the individual or by the indi-
vidual and his or her spouse... .
Id. at §2510.3-3(c) (emphasis added).
Once an ERISA plan is established, the DOL has
consistently concluded that all persons covered by the ~
plan, including working owners, are considered partici-
pants in the plan. For example, the DOL was presented
with the issue of whether a partner or sole proprietor is
subject to ERISA’s civil enforcement provision:
[W]Jhether Title I [including the preemption and
claims review procedures] of ERISA applies to
group medical programs which provide medical
coverage to a sole proprietor or a partner in an
unincorporated business, as well as common law
employees, and whether the claims made by such
a sole proprietor or partner would be subject to
the ERISA claims procedure.
[Letter from Robert J. Doyle, Director of Regulations and
Interpretations, Department of Labor, to Susan Katz
Hoffman, at 1 (July 31, 1992) (emphasis added) (attached
as Appendix (“App.”) 1).] After reviewing the breadth of
ERISA preemption, the DOL stated that, although sole
proprietors and partners are not considered “employees”
for purposes of deciding whether a benefit plan has been
established, once a plan is established (because other
employees are covered by the plan in addition to the sole
proprietor or partner), sole proprietors and partners are
10
participants and beneficiaries of the plan and are bound
by Title I of ERISA, including the preemption and claims
review provisions. Jd. In other words, once a plan has been
established, sole proprietors, partners, and other owners
who are covered under the plan are subject to ERISA’s
claims procedures and are considered beneficiaries and/or
participants for purposes of those claims. See DOL Report-
ing and Disclosure Regulations, 40 Fed. Reg. 34525, 34528
(August 15, 1975) (definition of “employee” in §2510.3-3 is
for the limited purpose of determining whether a plan has
any employees, and thus whether an ERISA plan exists;
hence, the regulations are revised to expressly limit the
definition of “employee” to §2510.3-3 in order to avoid
excluding the “self-employed” from ERISA).
The 1992 DOL information letter is consistent with
~ previous agency opinions on the issue. In DOL Advisory
Opinion 79-8A (attached as App. 19), the agency stated
that the wife of a partner in a partnership whose employ-
ees participated in a multi-employer pension plan was not
automatically excluded from participation in the plan
merely because the definition of an “employee” in §2510.3-
3 is somewhat restrictive. The agency stated that the
regulatory definition of “employee” was not intended to
dictate a person’s status under a plan once an ERISA plan
is established. Likewise, in DOL Advisory Opinion 81-54A
(attached as App. 14), the DOL advised as to which indi-
viduals would be counted as participants and/or benefici-
aries in a scholarship fund for purposes of ERISA’s
reporting and disclosure requirements. Again, the agency
read the terms “participant” and “beneficiary” broadly. It
concluded that the term “beneficiary” would include the
children of eligible individuals who may become entitled to
a scholarship from the fund and that all individuals
11
meeting the eligibility criteria “of the Fund” would be
participants and/or beneficiaries in accordance with
ERISA. In other words, it was the eligibility criteria “of
the Fund” that controlled participant and beneficiary
status.
Most recently, the DOL reaffirmed its longstanding
position that “the statutory provisions of ERISA, taken as
a whole, reveal a clear Congressional design to include
‘working owners’ within the definition of ‘participant’ for
purposes of Title I of ERISA.” DOL Advisory Opinion 99-04
(attached as App. 4).
The DOL’s regulatory interpretation of ERISA is
entitled to deference. In Chevron U.S.A., Inc. v. Natural
Resources Defense Council, Inc., 467 U.S. 837 (1984), this
Court held that where an administrative agency is author-
ized to regulate a particular statute and where the
agency’s regulation is a “permissible construction” of the
statute, a court must defer to the agency’s interpretation.
Id. at 843-44 (“[w]e have long recognized that considerable
weight should be accorded to an executive department’s
construction of a statutory scheme it is entrusted to
administer”). In reviewing an agency’s interpretation, “the
question before [the court is] not whether in its view the
concept is ‘inappropriate’ in the general context of a
program ... but whether the Administrator’s view that it
is appropriate in the context of this particular program is
a reasonable one.” Jd. at 844. Thus, the DOL’s regulation
that a benefit plan is governed by ERISA where it covers
at least one employee is entitled to deference. See, e.g.,
Black & Decker Disability Plan v. Nord, ___ U.S. ___, 123
S.Ct. 1965, 155 L.Ed.2d 1034 (2003) (deferring to DOL
claim regulations in holding that the treating physician
rule does not apply to ERISA disability benefit determina-
tions).
12
While the DOL’s subsequent advisory opinions inter-
preting its regulation may not be entitled to Chevron-style
deference per se, DOL opinions interpreting its own
regulation should certainly be persuasive. Clackamas
Gastroenterology Assocs., P.-C. v. Wells, __ U.S. __, 123
S.Ct. 1673, 155 L.Ed.2d 615 (2003) (EEOC guidelines
under the ADA are persuasive). See also Cvelbar v. CBI
Illinois, 106 F.3d 1368, 1375 (7th Cir.), cert. denied, 522
U.S. 812 (1997) (“Although the position of the Secretary [of
Labor], even when contained in an opinion letter of the
Department, is not binding upon this court, the views of
the agency charged with the administration of the statute
carry considerable weight.”). The DOL’s “bright line”
definition that working owners are “participants” is
certainly a “permissible construction” of ERISA. Whether
entitled to deference under the Chevron doctrine or
whether it is merely persuasive, the DOL’s position on this
issue lends much needed consistency and predictability to
the statute as well as to the administration of ERISA-
governed plans.
C. THE MAJORITY OF CIRCUIT COURTS HOLD
THAT WORKING OWNERS HAVE STANDING
TO SUE FOR PLAN BENEFITS UNDER ERISA,
CONCLUDING THAT SUCH A RESULT IS NEC-
ESSARY TO ENSURE UNIFORM REGULATION
OF EMPLOYEE BENEFIT PLANS AND CON-
SISTENT APPLICATION OF PLAN TERMS.
The majority of circuits have interpreted ERISA to
grant standing to working owners, including sole share-
holders of corporate employers. For example, in Madonia,
supra, the Fourth Circuit held that a sole shareholder of a
medical corporation had standing to sue as a participant
under ERISA. Among other things, the Fourth Circuit held
— -_——o
~_—_ =
13
that a working owner’s standing to sue under ERISA was
consistent with congressional intent for uniform federal
regulation of employee benefit plans:
By concluding that sole shareholders can be con-
sidered ‘participants’ in their companies’ em-
ployee welfare benefit plans, we likewise avoid
the situation in which two separate bodies of law
would govern a corporation’s employee benefits
claims. In this particular case, it would seem
anomalous to have [the shareholder] seeking re-
covery under state law theories and [other em-
ployees] suing under ERISA. In enacting ERISA,
Congress drafted its ‘most sweeping federal pre-
emption statute’ in order to achieve uniformity
and consistency in the law governing employee
benefits ... Disallowing shareholders such as
[the plaintiff) from being plan ‘participants’
would result in disparate treatment of corporate
employees’ claims, thereby frustrating the statu-
tory purpose of ensuring similar treatment for all
claims relating to employee benefit plans.
Id. at 450.
The Fifth Circuit, sitting en banc, has held that where
a corporate employer is owned by a husband and wife, and
where the corporation sponsors an ERISA health benefits
plan, the shareholders are participants under ERISA with
standing to sue for plan benefits. Vega v. National Life Ins.
Services, supra. As in Madonia and the present case, the
Fifth Circuit held that the health plan was governed by
ERISA because it covered at least one employee in addi-
tion to the spouse/shareholders. Once an ERISA plan was
established, the Fifth Circuit held that the shareholders
were considered participants in the plan. The Fifth Circuit
was “persuaded by the reasoning in Madonia”, including
14
that court’s statement that such a result “promoted Con-
gress’ objective of achieving uniformity through the en-
actment of ERISA because it fostered consistency in the
law governing employee benefits.” 188 F.3d at 294.
Vega and Madonia are part of a long line of circuit
court authority holding that working owners of ERISA
plan sponsors have standing to sue for plan benefits under
ERISA in large part because a contrary holding would
frustrate Congress’ objective of creating uniform regula-
tion of employee benefit plans. See, e.g., Gilbert v. Alta
Health & Life Ins. Co., 276 F.3d 1292, 1303-04 (11th Cir.
2001) (“This conclusion [that a sole shareholder has
standing to sue under ERISA] also comports with common
sense ... If we accepted [the shareholder’s) reading of the
[DOL] regulation, then he and his wife would have a
different set of rights and remedies than the other em-
ployees covered by the same plan.”); Wolk v. Unum Life
Ins. Co. of America, 186 F.3d at 357 (“As several courts of
appeals have noted, ‘to hold otherwise would create the
anomaly of requiring some insureds to pursue benefit
claims under state law while requiring others covered by
the identical policy to proceed under ERISA. Such a
scenario would frustrate Congress’ intent of achieving
uniformity in the law governing employment benefits.”);
Prudential v. Doe, 76 F.3d at 209 (a working owner’s
standing to pursue ERISA remedies was supported by the
policy rationale that avoided the “anomaly of requiring
some insureds to pursue benefit claims under state law
while requiring others covered by the identical policy to
proceed under ERISA”); Robinson v. Linomaz, 58 F.3d at
369 (noting that its holding that working owners have
standing under ERISA once an ERISA plan is established
is consistent with congressional intent and that “it would
ee ee qs SE ae so eee -
15
be anomalous to have those persons benefiting from [the
plan] governed by two disparate sets of legal obligations”);
Peterson v. American Health, 48 F.3d at 409 (“To hold [that
a working owner does not have standing to sue under
ERISA] would create the anomaly of requiring some
insureds to pursue benefit claims under state law while
requiring others covered by the identical policy to proceed
under ERISA. Such a scenario would frustrate Congress’
intent of achieving uniformity in the law governing em-
ployment benefits.”); Harper v. American Chambers, 898
F.2d at 1434-35 (“[OJur construction of the statutes defin-
ing the [working owners] as ERISA beneficiaries is conso-
nant with the ERISA statutory scheme.”).‘ Even the Sixth
* Several of the circuit court holdings that working owners have
standing to sue under ERISA are based on the owner’s status as a
beneficiary, apart from his or her status as a participant. These
decisions are based on the plain language of ERISA’s definition of a
beneficiary, which includes not only persons who are designated by a
participant to receive plan benefits (e.g., such as in a life insurance
policy), but also includes “a person ... designated by the terms of an
employee benefit plan, who is or may become entitled to a benefit
thereunder.” ERISA, §3(8) [29 U.S.C. §1002(8)). These courts have held
that this definition is clear and unambiguous and includes working
owners who are otherwise covered under the terms of the ERISA plan.
See, e.g., Gilbert v. Alta Health, 276 F.3d at 1295 (a sole shareholder has
standing as a beneficiary under an ERISA plan where he alleges that
he is entitled to benefits under the terms of the plan); Wolk v. Unum,
186 F.3d at 356 (a plain language interpretation of ERISA dictates that
a partner who alleges that he is entitled to benefits under the terms of
an ERISA plan has standing as a beneficiary of that plan); Prudential v.
Doe, 76 F.3d at 209-10 (a joint shareholder is a beneficiary where he
alleges that he is entitled to benefits under an ERISA plan); Robinson v.
Linomaz, 58 F.3d at 369 (the plain language of the statute dictates that
a joint shareholder is a beneficiary); Peterson v. American Life, 48 F.3d
at 409 (because a partner is designated to receive benefits under an
ERISA plan, the plain language of the statute dictates that the partner
is a beneficiary of the plan); Harper v. American Chambers, 898 F.3d at
(Continued on following page)
16
Circuit, which is one of two circuits to preclude sole share-
holders from participant status under ERISA,’ has ac-
knowledged the patent inconsistency in doing so:
When self-employed individuals are excluded
from classification as participant or beneficiary,
the self-employed lack standing to enforce their
rights under ERISA and can sue under state law
theories. ERISA was originally put into place to
protect the interests of employees by imposing
duties on those who fund and administer the
employee benefit plans; with these protections
come limitations on employees’ rights to recover
state law remedies. Although self-employed indi-
viduals may not need the protections offered by
ERISA, because they are likely to look out for
themselves in the administration of the plan, it
does not follow that once a self-employed person
chooses to participate in an ERISA plan and gain
benefits thereunder, she should be free from the
1434-35 (same). See also Engelhardt v. Paul Revere, 139 F.3d at 1351 (a
joint shareholder is a beneficiary where he is designated to receive
benefits under an ERISA plan). Because ERISA’s civil enforcement
provision permits suits for plan benefits by both participants and
beneficiaries, these cases hold that working owners have standing to
sue under ERISA as beneficiaries even if for some reason they are not
considered participants. ERISA, §502(a\(1B). If this Court holds that
working owners are considered participants, the question of their status
as beneficiaries would be moot in most cases. Even so, the question of
beneficiary status is not presented in the petition before this Court and
is not at issue in this case.
* The Sixth Circuit has held that joint shareholders of a corporate
plan sponsor are participants under ERISA, even though sole share-
holders, such as Dr. Yates, are not considered participants. Compare
Santino v. Provident, supra (joint shareholders covered under an ERISA
plan are considered participants) with Hendon v. Yates, supra (a sole
shareholder is not a participant).
a ae ae
— “~~ ——
17
limitations imposed upon her employees. Under
Fugarino, a self-employed individual who par-
ticipates in a disability plan that covers him and
all of his employees will have a unique advan-
tage: the self-employed individual can pursue a
parade of state law claims that are withheld from
his employees by preemption.
Agrawal v. Paul Revere, 205 F.3d at 303.
D. THE SIXTH CIRCUIT DECISION ON REVIEW
CREATES INCONSISTENCY IN THE REGULA-
TION OF ERISA PLANS AND IN THE APPLICA-
TION OF ERISA PLAN TERMS, CONTRARY TO
THE INTENT OF CONGRESS.
1. Congress Enacted ERISA To Establish Uni-
form Regulation Of Employee Benefit Plans
In Order To Reduce The Costs Of Administer-
ing Such Plans And To Thereby Make Such
Plans Available To A Greater Number Of Em-
ployees.
Congress enacted ERISA in order to promote a cost-
effective private employee benefit plan system through
uniform fiduciary standards and remedies. A single regu-
latory framework allows simplicity in plan administration.
See, e.g., Shaw v. Delta Air Lines, 463 U.S. 85, 99 n. 20
(1983). See also Ft. Halifax Packing Co., Inc. v. Coyne, 482
U.S. 1, 9 (1987) (simplicity in plan administration is
achieved by establishing “a uniform administrative
scheme, which provides a set of standard procedures to
guide processing of claims and disbursement of benefits”).
A uniform system of benefit plan regulation leads to lower
administrative costs and broader availability of benefits to
employees. As this Court stated in Varity Corporation
v. Howe, 516 U.S. 489 (1996), one of the “competing
18
purposes” of Congress was “its desire not to create a
system that is so complex that administrative costs, or
litigation expenses, unduly discourage employers from
offering welfare benefit plans in the first place.” Jd. at 497.
The importance of regulatory uniformity within an
employee benefit plan is amply illustrated by the decision
in Shaw, supra. One of the issues in that case was
whether state-mandated disability benefits that were
otherwise expressly exempted from ERISA fell within
federal ERISA regulation where they were administered
as part of a plan that also included ERISA-governed
benefits. 463 U.S. at 107-08. This Court noted that ERISA
was enacted to avoid situations where “one portion of a
multibenefit plan would be subject only to state regula-
tion, while other portions would be exclusively within the
federal domain.” Jd. at 107. Shaw recognized that “[tJhe
administrative impracticality of permitting mutually
exclusive pockets of federal and state jurisdiction within a
plan is apparent.” Jd. at 107-08. Accordingly, Shaw held
that the entire plan was regulated by ERISA, including
the “non-ERISA” benefits. 463 U.S. at 108.
2. The Decision Below Creates Inconsistency In
The Regulation And Application Of ERISA
Plan Terms And Is Contrary To Congres-
sional Intent For Uniform Regulation And
Lower Benefit Costs.
Exclusion of working owners from ERISA’s civil
enforcement scheme creates a serious dysfunction within
ERISA’s civil enforcement scheme. This schism permits
working owners to sue plan fiduciaries, who are required
to administer the entire plan under federal law, for viola-
tions of state law. Other covered employees are required to
|
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}
}
|
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19
sue under federal law. Allowing working owners to main-
tain state law causes of action outside of ERISA’s preemp-
tive sphere creates the “mutually exclusive pockets of
federal and state jurisdiction within a plan,” against which
this Court warned in Shaw. Such multiplicity of regula-
tion and open-ended administrative and financial burdens
are precisely the problems that ERISA was intended to
avoid.
Exclusion of working owners from ERISA’s civil
enforcement scheme also creates an irony that was cer-
tainly not anticipated by Congress: because owners would
have access to state law damages remedies that are not
available under ERISA, working owners would have
broader remedies than are available to non-owner employ-
ees. The availability of state law damages increases the
cost of providing benefits, eventually reaching the point of
discouraging these same owners from providing benefits to
their employees in the first place. This is certainly con-
trary to the “protection” that Congress intended ERISA to
afford working men and women.
Exclusion of working owners from ERISA’s civil
enforcement scheme also creates a dysfunction between
the civil enforcement scheme and ERISA’s other regula-
tory provisions. The petitioner and the United States, as
amicus curiae, have demonstrated that multiple provisions
of the statute and the Internal Revenue Code provide that
working owners who participate in ERISA plans are
regulated by ERISA. It would make no sense if some
portions of ERISA regulated these owners’ participation in
employee benefit plans yet the civil enforcement provi-
sions were found not to regulate the owners’ claims for
benefits under the same plans.
20
Exclusion of working owners from ERISA’s civil
enforcement scheme also results in inconsistent applica-
‘tion of the same plan terms, as demonstrated by the
following scenarios:
> Assume that a small corporation purchases long term
disability insurance for its full-time employees, includ-
ing the sole shareholder. Assume also that the plan
expressly provides discretion to the insurer to deter-
mine eligibility for benefits. If a non-owner employee
applies for benefits and the insurer denies the claim
based on a determination that the emplovee’s medical
records do not evidence sufficient restrictions and
limitations to qualify for the employee to be consid-
ered disabled under the policy, the employee would be
required to sue under ERISA. Under Firestone Tire &
Rubber Co. v. Bruch, 489 U.S. 101 (1989), the review-
ing court would defer to the insurer’s factual determi-
nation and affirm that determination unless the
employee proved that it was an abuse of discretion.
However, if the same claim was filed by the sole share-
holder and the shareholder was permitted to sue
under state law, the abuse of discretion standard
would most likely not apply and the court would be
required to determine whether the insurer was correct
in denying benefits. Depending on the evidence, the
reviewing court could determine under state law that
the denial of the owner’s claim was wrong and should
be overturned whereas, in the case of the non-owner
employee, the same court might determine under ER-
ISA that, based on the same evidence, the decision
was not an abuse of discretion and should be affirmed.
> Assume the same facts as above, except that the
disability benefit claim is denied based on the in-
surer’s interpretation of a plan term. In the case of the
non-owner employee’s claim, a reviewing court would
be required to uphold the insurer’s interpretation if it
a RD GR =
21
was reasonable, even if the court would have applied a
different interpretation. In the case of the share-
holder’s claim, the reviewing court would be in the po-
sition of applying its own interpretation of the plan
term that would be contrary to the interpretation ap-
plied by the insurer. In other words, the same term in
the same policy could be subject to conflicting inter-
pretations solely because one claim is brought by the
shareholder under state law and the other claim is
brought by a non-owner employee under ERISA. The
non-owner employee would be denied benefits
whereas the shareholder would collect benefits even
though both denials were based on the same plan
terms.
Assume the same facts as above, except that neither
the working owner nor the non-owner employee ex-
haust administrative appeal procedures before filing
suit. Because the non-owner’s claim is governed by
ERISA, he or she would be required to exhaust the
plan’s administrative remedies before pursuing the
lawsuit. See, e.g., Norris v. Citibank, NA Disability
Plan, 308 F.3d 880 (8th Cir. 2002) (discussing exhaus-
tion requirement under ERISA). If the working
owner’s claim is governed by state law, there is no cor-
responding exhaustion requirement, allowing the
working owner to bypass administrative remedies at
his or her discretion. Similarly, once the case reaches
court, the non-owner’s ERISA claim will be limited to
a review of the administrative record, a requirement
also not found under state law. See, e.g., Perlman v.
Swiss Bank Long Term Disability Plan, 195 F.3d 975
(7th Cir. 1999) (discussing limited scope of review un-
der ERISA). Pre-trial discovery is also limited under
ERISA whereas there is no limitation under state law.
See, e.g., Perlman v. Swiss Bank, supra.
22
The above examples illustrate the most fundamental
defect in the decision below: exclusion of working owners
from ERISA’s remedies results in inconsistent and conflict-
ing applications of plan terms and plan fiduciary benefit
decisions. It certainly was not Congress’ intent that ERISA
should be so narrow that it allows working owners who are
covered under the same benefit plan as other employees to
have a better opportunity to collect benefits than their
non-owner employees. The intent of Congress was that if
the same plan terms apply to all persons covered under
the plan, those terms should be applied consistently to all
persons covered by the plan. No other result makes any
sense.
E. A “BRIGHT LINE” RULE THAT WORKING OWN-
ERS ARE PARTICIPANTS IS THE ONLY AP-
PROACH CONSISTENT WITH THE STATUTORY
LANGUAGE OF ERISA, THIS COURT’S PRECE-
DENTS AND CONGRESS’ INTENT TO PROVIDE
PLAN ADMINISTRATORS WITH CONSISTENCY
AND PREDICTABILITY IN DETERMINING WHO
IS A PARTICIPANT UNDER THE PLAN.
In addition to determining whether working owners
have standing to sue for benefits under ERISA, the status
of working owners as plan participants also governs
whether ERISA-mandated claim procedures apply to
benefit claims filed by working owners. ERISA, §503 [29
U.S.C. §1133] requires a two-stage process whereby the
claims administrator makes an initial determination of
benefit eligibility and where the participant is guaranteed
at least one level of review. Jd. The DOL has issued
lengthy and detailed regulations governing the time
periods applicable to these administrative reviews, the
notice requirements applicable to benefit denials, what
— ET
23
persons are required to review the claim (including medi-
cal personnel where appropriate), and related issues. 29
C.F.R. §2560.503-1. As discussed above, the DOL has also
issued multiple opinions that where a working owner is
covered under a plan that also covers non-owner employ-
ees, claims for benefits filed by the working owner are
subject to ERISA.
The DOL’s “bright line” determination that working
owners are participants is directly consistent with the
language of ERISA and the manner in which this Court
has required that language to be interpreted. Importantly,
the DOL’s approach also lends regulatory uniformity and
predictability to the claims process, thereby further
ensuring lower costs of maintaining ERISA plans.
It is well settled that the starting point for proper
statutory construction is the language of the statute itself.
Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318 (1992).
Here the DOL’s position is grounded on multiple provi-
sions of ERISA as well as related provisions of the tax
code. See, e.g., DOL Advisory Opinion 99-04A (App. 4.)
These statutory provisions include working owners as
participants under ERISA and alleviate any need to resort
to the common law, as this Court did in Darden.
In Darden, this Court was charged with interpreting
the term “employee” in ERISA vis a vis independent
contractors. 503 U.S. at 324. Looking to the statute on that
specific point, the Court held that “Darden does not cite,
and we do not find, any provision either giving specific
guidance on the term’s meaning or suggesting that con-
struing it to incorporate traditional agency law principles
would thwart the congressional design or lead to absurd
results.” Jd. Thus, in the absence of any statutory
24
provisions that clarified whether or not an independent
contractor was a participant under ERISA, and faced with
two previous situations where the Court had defined the
term “employee” broadly in the absence of such legislative
guidance, only to see Congress subsequently amend the
statute to specify a common law meaning, the Court
reasonably applied a common law definition to the term.
Id. at 324-25.
Likewise, in Clackamas, supra, this Court incorpo-
rated common law principles into the ADA to determine
the employee status of corporate shareholders. In that
case, although no ADA provisions specifically resolved the
question, the statutory provisions the Court found most
relevant, (the ADA’s exemption for small employers)
actually mitigated against adopting a broader definition
for the term than that dictated by common law. 123 S.Ct.
at 1678-79.
Unlike the independent contractor issue in Darden
and the ADA issue in Clackamas, there are statutory
provisions in both ERISA and corresponding tax code
provisions that do explain the participant status of work-
ing owners and that do require that working owners be
considered participants when they participate in ERISA-
governed plans with other non-owner employees. Unlike
Darden and Clackamas, then, there is no reason to resort
to the common law te resolve the issue in this case. And
unlike Darden and Clackamas, resort to common law here
would both “thwart the congressional design [and] lead to
absurd results.” Darden, 503 U.S. at 323.
There are also other considerations that distinguish
this case from Darden and Clackamas. First, both Darden
and Clackamas anticipate that each issue must be
eee —.
25
addressed on its own and that even if a common law test is
utilized, the applicable criteria may differ from situation
to situation. For example, this Court applied different
factors for determining employer-employee status under
the ADA in Clackamas than it did for determining inde-
pendent contractor-employee status in Darden. Clacka-
mas, 123 S.Ct. at 1678 n. 4 (noting that the Darden
common law “factors are not directly applicable to this
case because we are not faced with drawing a line between
independent contractors and employees”). Neither case
mandates a hard and fast rule that must be applied under
all circumstances where the question is whether someone
is a participant or an “employee.” Neither case mandates a
common law test in all situations under ERISA.
Second, unlike the ADA where a person cannot be
both an employer and an employee, ERISA anticipates the
possibility in several contexts that a person may “wear two
hats.” For example, this Court has held that an employer
may be a fiduciary of an ERISA plan with duties to par-
ticipants and beneficiaries for some purposes even though
the same employer may act as an employer with the right
to act in its own interests for other purposes, even if those
interests are detrimental to participants and beneficiaries.
See, e.g., Lockheed Corporation v. Spink, 517 U.S. 882, 890
(1996) (employer, who is a fiduciary for some purposes,
may amend plan terms to reduce available benefits be-
cause in making plan design decisions, the employer does
not act as a fiduciary). Thus, the possibility that a working
owner may act as an employer in some situations with
respect to an ERISA plan and as a participant-employee in
other situations with respect to the same ERISA plan is
not at all surprising or inconsistent with the statutory
design.
26
Third, the considerations in Clackamas that counseled
in favor of adopting a multi-factor common law test are not
applicable in this case. As stated, the ADA incorporates an
exemption for small employers, evidencing congressional
intent that a large group of potentially covered entities
will not be subject to regulation under the ADA. Clacka-
mas, 123 S.Ct. at 1678-79. This Court specifically cited the
exemption as a “countervailing consideration” mitigating
against adopting a definition broader than the common
law. Id.
Here there is no such “countervailing consideration.”
ERISA has no small employer exemption. To the contrary,
ERISA anticipates broad application, even to plans that
cover only one employee. And as noted above, while ERISA
may be silent as to whether its broad application applies
to independent contractors, the same cannot be said with
respect to “working owners.” Furthermore, Clackamas
places substantial weight on the opinions of the EEOC in
regulai.ng the ADA. As noted above, similar weight should
be placed on the DOL in regulating ERISA.
Finally, unlike the ADA, this Court has already
recognized that the congressional policy of uniformity in
the regulation of ERISA plans overrides even explicit
statutory exemptions. This Court has held that even
where certain benefits are expressly excluded from ERISA,
they are governed by ERISA where they are administered
as part of an ERISA benefit program. Shaw, supra. Shaw
provides substantial guidance in determining the result in
this case. Even if a working owner would not be considered
an “employee” generally under one or another common law
test, the working owner should be regulated by ERISA as
27
a participant where he or she participates in an ERISA-
governed plan that covers non-owner employees. No other
result can satisfy the need for uniform regulation.
The petitioner suggests that the common law supports
participant status for Dr. Yates. This is certainly true with
respect to a shareholder of a corporation. For example, in
Madonia, supra, the Fourth Circuit held that common law
principles supported the conclusion that a sole shareholder
was an employee of the corporation where the shareholder
was subject to the same treatment as non-owner employ-
ees with respect to compensation and taxes, and where the
common law recognized the distinction between a corpo-
rate entity and its owner. 11 F.3d at 449. In the context of
corporate shareholders, application of the common law
rule which respects the corporate form and includes as an
“employee” any individual who chooses to accept the
benefits and burdens of such a corporate form, makes
emminent sense and promotes the interests of uniformity
to a greater extent than a “multi-factor” common law test
such as the one adopted in Clackamas and Darden.
However, such a common law test is problematic with
respect to other working owners such as proprietors and
partners. Frequently, proprietors and partners are treated
differently from non-owner employees with respect to
compensation and there is no corresponding distinction in
the common law between proprietors and partners on the
one hand and their business entities on the other hand.
Yet, where proprietors and partners are covered under the
same ERISA-governed plan as non-owner employees,
there is the same potential for varied and conflicting
regulation within a plan as where the working owner is a
shareholder.
28
Thus, it is clear that importation of the common law
to resolve the issue at hand will inevitably “thwart the
congressional design” which not only specifically contem-
plates working owners as employees but also requires both
uniformity and predictability. Darden, 503 U.S. at 326
(rejecting lower court’s analysis because the analysis was
“unable to furnish predictable results”). Resorting to a
multi-factor test implies that some working owners will be
excluded from participant status, leaving the plans in
which they participate along with non-owner employees
subject to varied and potentially conflicting laws, as
discussed above. Application of multiple fact. ‘ensitive
criteria to determine participant status will also destroy
predictability. This type of analysis might be practical
when one is dealing with issues that are resolved in
litigation, such as whether an employer meets the mini-
mum threshold requirement of the ADA. However, it does
not make sense when laypersons must determine partici-
pant status in a pre-litigation administrative environment
in order to determine what procedures are applicable to a
working owner’s claim for plan benefits. In fact, the time
periods for making claim decisions under ERISA plans,
some of which are as short as 24 hours, make it impossible
for an ERISA plan claims administrator to make such a
determination based on a multi-factor common law test.
The ADA does not incorporate an administrative process
that is similar to ERISA’s claim process. In the ERISA
claim administration environment, only a “bright line” test
will suffice. Otherwise, hundreds of claim administrators
would be required to conduct what would amount to full
discovery, just to determine whether or not ERISA claim
procedures are applicable in the first place. This would
amount to the type of “absurd results” this Court warned
against in Darden. 503 U.S. at 323.
a ae ae
2s" 2228. es 2
29
Certainly Congress did not intend the claim review
process required by section 503 to be such a complicated,
expensive and unpredictable process. If claim administra-
tors can apply the same administrative procedures to all
persons making claims under the same plan, including
working owners, the entire process is simplified and
uniform. This is exactly what Congress intended.
+
CONCLUSION
For the reasons stated herein, this Court should
reverse the ruling below.
Respectfully submitted,
WILLIAM J. KAYATTA, JR. MaRK E. SCHMIDTKE*
BYRNE J. DECKER *Counsel of Record
PIERCE ATWOOD HOEPPNER WAGNER &
One Monument Square Evans LLP
Portland, ME 04101 103 East Lincolnway
(207) 791-1100 Valparaiso, IN 46384
(219) 465-7368
August 11, 2003
App. 1
U.S. Department of Labor
Pension and Welfare Benefits Administration
Washington, D.C. 20210
July 31, 1992
[SEAL]
Ms. Susan Katz Hoffman
Pepper, Hamiltan & Scheetz
3000 Two Logan Square
Eighteenth & Arch Streets
Philadelphia, Pennsylvania 19103-2799
Dear Ms. Hoffman:
This is in reply to your request for an information
letter regarding the applicability of title I of the Employee
Retirement Income Security Act of 1974 (ERISA). Specifi-
cally, you ask whether title I of ERISA applies to group
medical programs which provide medical coverage to a sole
proprietor or a partner in an unincorporated business, as
well as common law employees, and whether the claims
made by such a sole proprietor or partner would be subject
to the ERISA claims procedure.
Section 4(a) of title I of ERISA generally provides that
any employee benefit plan established or maintained by an
employer engaged in commerce or in any industry or
activity affecting commerce, by any employee organization
representing employees engaged in commerce or in any
industry or activity effecting commerce, or by both will be
covered by that title unless excluded in subparagraph (b).
A program providing medical coverage would generally be
considered to be providing benefits among those included
in the definition of an employee welfare benefit plan.
App. 2
The definition of the term “employee benefit plan”
contained in section 3(3) of title I of ERISA includes both
employee welfare benefit plans and employee pension
benefit plans. In regulation 29 CFR 2510.3-3, the Depart-
ment of Labor (the Department) clarified the definition of
the term “employee benefit plan” for the purposes of title I
of ERISA. Paragraph (b) of §2510.3-3 provides that “the
term ‘employee benefit plan’ shall not include any plan,
fund or program, other than an apprenticeship or other
training program, under which no employees are partici-
pants covered under the plan ...” For purposes of the
regulation, paragraph (c) of §2510.3-3 provides that
certain individuals shall not be deemed to be employees.
Specifically §2510.3-3(c) provides that:
(c) Employees. For purposes of this section:
(1) An individual and his or her spouse
shall not be deemed to be employees with respect
to a trade or business, whether incorporated or
unincorporated, which is wholly owned by the
individual and his or her spouse, and
(2) A partner in a partnership and his or
her Spouse shall not be deemed to be employees
with respect to the partnership.
If a benefit program were limited to individuals
identified in §2510.3-3(c), the benefit program would not
constitute an employee benefit plan described in section
3(3) of title I of ERISA and, therefore, would not be cov-
ered by that title. If, on the other hand, the benefit pro-
gram includes one or more common law employees as well
as an individual described in §2510.3-3(c), such program
would be an employee benefit plan within the meaning of
section 3(3) of title I of ERISA.
App. 3 a
Employee benefit plans covered Under title I of ERISA
must comply with the claims procedure provisions of
section 503 of title I of ERISA and the Department’s
regulation concerning claims procedures, 29 CFR
2560.503-1. A plan’s claims procedure applies to any
participant or beneficiary covered under the employee
benefit plan, including any participant or beneficiary
described in §2510.3-3(c).
We hope this information will be helpful to you.
Sincerely,
/s/ Robert J. Doyle
ROBERT J. DOYLE
Director of Regulations
and Interpretations
App. 4
Department of Labor
Pension & Welfare Benefit Programs
OPINION 99-04 A
— February 4, 1999
REQUEST BY:
John P. Counts, Esq.
David Potts-Dupre, Esq.
Counts & Kanne
Suite 444
1125 15<th> Street, NW
Washington, D.C. 20005
OPINION:
This is in response to your request for an advisory
opinion concerning the definition of “participant” provided
in section 3(7) of Title I of the Employee Retirement
Income Security Act of 1974 (ERISA). Specifically, you ask
whether individuals who own business enterprises, either
wholly or in part, and who provide personal services to
those businesses may be “participants,” within the mean-
ing of section 3(7) of ERISA, in a multiemployer employee
benefit plan. You state that the business enterprises that
are the subject of this request include businesses that are
operated as corporations, sole proprietorships, and part-
nerships.
You submit your request on behalf of the National
Electrical Benefit Fund (the NEBF), a multiemployer
pension plan established jointly by the International
Brotherhood of Electrical Workers (IBEW) and the Na-
tional Electrical Contractors Association (NECA) pursuant
App. 5
to collective bargaining. You describe the NEBF as the
largest construction industry fund in the United States,
with approximately 375,000 participants, over 14,000
contributing employers, and plan assets of almost five
billion dollars.
The documents that you have submitted indicate that
an individual can become eligible to participate in the
NEBF only as a result of an employer’s having executed a
participation agreement with the NEBF, obligating the
employer to make contributions on behalf of at least some
of its employees. See Restated Employees Benefit Agree-
ment and Trust for the National Electrical Benefit Fund
(hereinafter Trust Agreement), Part I, Provision 4; sections
1.7, 1.8, 1.18, 6.3.3. An employer must agree at a mini-
mum to make contributions on behalf of its bargaining
unit employees. Id. section 6.3.1. Such an employer may
elect, in addition, to contribute on behalf of its “non-
bargaining unit employees.” An employer may contribute
on behalf of all “non-bargaining unit employees” or only
those non-bargaining unit employees who were formerly
bargaining unit members (“alumni”). Id.
With respect to bargaining unit employees, a partici-
pating employer must contribute to the NEBF an amount
equal to three percent of “all wages and other compensa-
tion paid to, or accrued by, the Covered Employees in the
... bargaining unit for services performed for the Covered
Employer.” Id. section 6.2.1. For non-bargaining unit
employees, the employer must contribute to the NEBF an
amount equal to the lesser of
“(a) 3% of all wages and other compensation
which the Covered Employer would pay, or which
the [non-bargaining unit] Covered Employees
App. 6
would accrue, if the Covered Employees were re-
ceiving the wage rate received by the highest
number of employees in the appropriate . . . bar-
gaining unit and working the normal straight
time hours provided for in the appropriate labor
agreement, or (b) 3% of all wages and other com-
pensation paid to, or accrued by, the [non-
bargaining unit] Covered Employees for services
performed for the Covered Employer... .”
Id. Section 6.2.2.
The documents that you have supplied indicate that
the NEBF provides a pension benefit, which may be paid
as an early retirement pension or a normal retirement
pension, and a disability benefit. A participant becomes
vested in his or her pension benefit upon earning at least
five vesting service credits.’ Pension benefits for vested
participants are calculated by multiplying the partici-
pant’s benefit service credits’ by fixed dollar amounts that
are specified in the plan. As a result, the amount of a
participant’s monthly pension benefit is not dependent
upon the participant’s actual income prior to retirement or
the actual amount of contributions that an employer made
on his or her behalf, but rather upon seniority in the
NEBF.
* One vesting service credit is earned for each year after 1965 in
which a participant is credited with 1000 hours of covered service for
covered employment (employment during a period for which an
employer is obligated to make contributions for that employee).
* One benefit service credit is similarly earned for each year after
1965 in which a participant is credited with 1000 hours of covered
employment.
atic 5 cates
App. 7
You represent that the trustees of the NEBF currently
interpret its plan documents to permit “working owners”
to be treated as employees eligible to participate in the
NEBF and therefore to become participants in the NEBF”
The eligible “working owners” include any “owner that
earns wages or self-employment income from a company,”
including sole proprietors of unincorporated businesses.
You indicate that the working owners who currently
participate in the NEBF are journeyman electricians who
had worked initially as bargaining unit members for other
employers that contributed to the NEBF on their behalf.
They subsequently acquired ownership interests in those
employers or started their own electrical businesses,
sometimes in partnership with other similarly situated
individuals, sometimes by creating wholly-owned corpora-
tions, and sometimes operating as sole proprietors. They
continue to work as electricians and in some cases employ
other union members covered by the NEBF. Most of these
working owners had earned vested pension benefits in the
NEBF based on their previous service as bargaining unit
employees, and they began accruing additional service
* By the term “working owner,” you apparently mean any individ-
ual who has an equity ownership right of any nature in a business
enterprise and who is actively engaged in providing services to that
business, as distinguished from a “passive” owner, who may own shares
in a corporation, for example, but is not otherwise involved in the
activities in which the business engages for profit.
* This current practice has been followed only since January, 1994.
In the course of its history (since its creation in the early 1960's), the
NEBF’s practices have varied regarding participation by individuals
who have equity ownership rights in business enterprises that operate
in the industry covered by the IBEW.
App. 8
credits when the NEBF changed its eligibility rules in
1994 to permit working owners to participate.
You represent that the employer’s payroll reports,
submitted monthly to the NEBF, are used to determine an
employer’s contributions, based on the working owner’s
reported “wages,” and a working owner’s service credits,
based on the working owner’s reported hours of service.
You further represent that reporting employers determine
a working owner’s “wages” by determining the greater of
the working owner’s actual gross earnings subject to
employment tax for that month or the amount the working
owner would have earned if he had worked at normal
straight-time hours for the month at the applicable jour-
neyman’s rate. The working owner’s hours of service are
reported as the actual hours the working owner worked for
the business during the month.
Section 3(7) of Title I of ERISA provides that a “par-
ticipant” is “any employee or former employee of an
employer, or any member or former member of an em-
ployee organization, who is or may become eligible to
receive a benefit of any type from an employee benefit plan
which covers employees of such employer or members of
such organization, or whose beneficiaries may be eligible
to receive any such benefit.” Section 3(6) in turn defines an
“employee” as “any individual employed by an employer.”
Finally, section 3(5) defines “employer” as “any person
acting directly as an employer, or indirectly in the interest
of an employer, in relation to an employee benefit plan;
and includes a group or association of employers acting for
an employer in such capacity.”
Title I of ERISA contains multiple indications, albeit
indirect, that Congress assumed that a “working owner”
ae
App. 9
could be a “participant” in an employee benefit plan
sponsored by the business in which that working owner
held an ownership right, regardless of the legal form in
which the business was operated. For example, section
401(aX2) exempts certain partnership agreements from
the fiduciary provisions of Part 4. This exemption would
be meaningless if the partnership agreements themselves
(which cover only partners, one of the categories of “work-
ing owners”) were not otherwise plars covered by Title I.
Further, section 403(bX3)A) specifically exempts from the
trust requirement of section 403(a) a plan “some or all of
the participants of which are employees described in
section 401(cX1) of the Code [emphasis added).” This
exemption takes as its basis the assumption that the
employees described in Code section 401(c\(1), namely self-
employed individuals (including “working owners”), are
legitimate “participants” within the meaning of Title I.
Also, section 408(bX 1) exempts from section 406’s prohibi-
tion of specified transactions certain non-discriminatory
loans made to plan participants, including highly compen-
sated employees, but section 408(d\1) eliminates that
exemption for owner-employees as defined in section
401(cX3) of the Code. Inasmuch as the owner-employers
described in Code section 401(c\3) are sole proprietors and
more than ten-percent partners, it is clear that the provi-
sions in section 408 of Title I assume that such “working
owners” are “participants” in the plans from which those
loans would be made.
These indications of Congressional intent are supported
and reinforced by the treatment of “working owners” under
App. 10
the provisions of Title II and Title IV of ERISA.* Section
401(c) of the Internal Revenue Code (the Code) provides
that self-employed individuals are included as “employees”
under Code section 401(a) to the extent that they have
earned income “with respect to a trade or business in
which personal services of the [individual] are a material
income-producing factor.” Code section 401(cX2\A). Code
section 401(c) further imposes specific additional require-
ments on tax-qualified pension plans that provide benefits
to “owner-employees,” a term defined in Code section
401(cX3) to include employees who own the entire interest
in an unincorporated trade or business or more than 10
percent of a partnership. It is thus patently clear that
Title II of ERISA permits “working owners” to receive the
tax benefits that flow from participation as “participants”
in pension plans that meet the qualification requirements
of Code section 401(a).
Title IV of ERISA (the termination insurance provi-
sions) also expressly includes “working owners” among the
“participants” who receive its protections. See ERISA
section 4001(bX1) (“an individual who owns the entire
interest in an unincorporated trade or business is treated
as his own employer, and a partnership is treated as the
employer of each partner who is an employee within the
meaning of [Code] section 401(cX1) . . .”). Section 4021(bX9)
of ERISA excludes from coverage under Title IV only those
* Although we rely on certain provisions of Title II and Title IV in
reaching the conclusions expressed in this opinion, nothing in this
opinion should be construed as interpreting the provisions of those
Titles that lie within the interpretive jurisdiction of the Department of
the Treasury and the Pension Benefit Guaranty Corporation.
‘A .
App. 11
pension plans that are “established and maintained
exclusively for substantial owners,” i.e., sole proprietors
and more than ten-percent owners of partnerships and
corporations. See ERISA section 4022(bX5XA) (defining
“substantial owner”). Title IV limits the amount of benefits
that the PBGC guarantees to “substantial owners” who
participate in single employer plans, but nonetheless
provides a basic guarantee of such owners’ pension bene-
fits.-Such a guarantee would be meaningless if Title I did
not permit such owners to be participants in ERISA-
covered pension plans.
In our view, the statutory provisions of ERISA, taken
as a whole, reveal a clear Congressional design to include
“working owners” within the definition of “participant” for
purposes of Title I of ERISA. Congress could not have
intended that a pension plan operated so as to satisfy the
complex tax qualification rules applicable to benefits
provided to “owner-employees” under the provisions of
Title II of ERISA, and with respect to which an employer
faithfully makes the premium payments required to
protect the benefits payable under the plan to such indi-
viduals under Title IV of ERISA, would somehow trans-
gress against the limitations of the definitions contained
in Title I of ERISA. Such a result would cause an intoler-
warned against in Nationwide Mutual Insurance Co. v.
Darden, 503 U.S. 318 (1992)
* In Darden, the United States Supreme Court held that the
definition of “employee” provided in section 3(6) of Title I did not
include an individual who was an independent contractor to the
(Continued on following page)
App. 12
Therefore, it is the view of the Department that there
is nothing in the definitions of Title I of ERISA that would
preclude a pension plan, including the NEBF, from extend-
ing plan coverage to “working owners,” as described in
your submission, where such coverage is otherwise consis-
tent with the documents and instruments governing the
plan and does not violate any other provisions of Title I.’
ERISA's fiduciary standards, however, require compli-
ance with any other applicable federal law. Pursuant to
ERISA section 514(d), nothing in Title I of ERISA shall be
employer that established and maintained the plan. In reaching this
conclusion, the Court first sought to determine whether ERISA
contained any provision “either giving specific guidance on the term’s
meaning or suggest.ng that construing it to incorporate traditional
agency law principles would thwart the congressional design or lead to
absurd results.” Jd. at 323. Finding no guidance in the statute itself, the
Court concluded that, “where Congress uses terms that have accumu-
lated settled meaning under ... the common law, a-court must infer,
unless the statute otherwise dictates, that Congress means to incorpo-
rate the established meaning of these terms.” 503 U.S. at 322. We
follow here the Court’s analysis in Darden, although with a different
result, inasmuch as we find ample guidance in ERISA as to Congress’
specific intent to treat “working owners” as “participants.”
" In its regulation at 29 C.F.R. 2510.3-3, the Department clarified
that the term “employee benefit plan” as defined in section 3(3) of Title
I does not include a plan the only participants of which are “an individ-
ual and his or her spouse ... with respect to a trade of business,
whether incorporated or unincorporated, which is wholly owned by the
individual or by the individual and his or her spouse” or “{a) partner in
a partnership and his or her spouse.” The regulation further specifies,
however, that a plan that covers as participants “one or more common
law employees, in addition to the self-employed individuals” will be
included in the definition of “employee benefit plan” under section 3(3).
The conclusion of this opinion, that such “self-employed individuals” are
themselves “participants” in the covered plan, is fully consistent with
that regulation.
App. 13
construed to alter, amend, modify, invalidate, impair, or
supersede any federal law or any rule or regulation issued
pursuant to such federal law. Such federal laws include
any requirements applicable to multiemployer benefit
plans under the Labor Management Relations Act
(LMRA). Several federal courts interpreting the LMRA
have upheld decisions by plan trustees to exclude owner-.
employees on the ground that their inclusion would violate
the LMRA. See, e.g., Todd v. Benal Concrete Const. Co.,
Inc., 710 F.2d 581 (9th Cir. 1983); Aitken v. GCU-Employer
Retirement Fund, 604 F.2d 1261 (9th Cir. 1979). The
Department is not authorized to issue opinions regarding
the LMRA. Accordingly, the fiduciary of a plan subject to
the LMRA that includes “working owners” should seek
legal advice regarding the propriety of the participation of
“working owners” in such plan under the LMRA.
This letter constitutes an advisory opinion under
ERISA Procedure 76-1. Accordingly, it is issued subject to
the provisions of that procedure, including section 10
thereof relating to the effect of advisory opinions.
Susan G. Lahne
Acting Chief
Division of Fiduciary Interpretations
Office of Regulations and Interpretations
App. 14
Department of Labor.
Pension & Welfare Benefit Programs.
OPINION 81-54A
June 22, 1981
REQUEST BY:
Mr. Richard M. Cosgrove
Executive Director
Lansing Mechanical Contractors Association
421 Seymour Avenue
Lansing, Michigan 48933
OPINION:
This is in response to your letter of February 15, 1980
regarding the Arthur J. Faggion Scholarship Fund (the
Fund) requesting an advisory opinion from the Depart-
ment of Labor (the Department) with respect to certain
reporting and disclosure requirements under the Em-
ployee Retirement Income Security Act of 1974 (ERISA)
for the Fund, which you recognize as an employee welfare
benefit plan under ERISA. Specifically, you request that
the department provide an advisory opinion as to (1)
which individuals should be counted as participants in the
Fund, and (2) whether the Fund is exempt from certain
reporting and disclosure requirements under ERISA.
Your request and the materials submitted therewith
- include the following facts and representations:
1. The Fund is a scholarship trust established by a
trust agreement between the Plumbers and Pipefitters
Union #338 (the Union), its members, and the Lansing
Mechanical Contractors Association (the Association). The
purpose of the Fund is to provide scholarship benefits to
= 6 em. ee ee
ae
App. 15
children of the dues-paying members of the Union and
certain employers or shareholder-employees of employers.
2. The Fund receives funds from employer contribu-
tions pursuant to a collectively bargained union contract
at the rate of 4 cents per hour worked for each Union
member.
3. Scholarship awards may be granted only to the
children of eligible individuals. Eligibility in the Fund is
limited to an individual who is:
(a) a dues paying Union member who was not
delinquent in paying dues as of December 31 of the prior
year and had 3,000 hours of work under the collectively
bargained agreement during the three years ending with
that date,
(b) an employer or shareholder-employee of the
employer on December 31 of the prior year who paid wages
to a member or members of the Union under the collec-
tively bargained agreement for at least 3,000 hours during
the three years ending with that date, or
(c) a deceased individual who at the time of death
met the requirements of (a) or (b).
4. The duties of the Fund trustees include:
(a) designating a bank or trust company as-deposi-
tory of the monies of the Fund and providing for the
withdrawal of such monies;
(b) receiving and depositing in the name of the Fund
such monies as are received pursuant to the collective
bargaining agreement;
App. 16
(c) paying out such monies to the designated recipi-
ents of the awards;
(d) paying the reasonable costs and expenses of
maintaining and administering the Fund;
(e) investing any unused portion of the monies as it
deems appropriate in obligations of the federal and state
governments and in obligations of banks, savings and loan
and building and loan institutions.
With respect to your inquiry concerning which indi-
viduals should be counted as participants in the Fund,
section 3(7) of ERISA defines a participant to be “any
employee or former employee of an employer, or any
member or former member of an employee organization,
who is or may become eligible to receive a benefit of any
type from an employee benefit plan which covers employ-
ees of such employer or member of such organization, or
whose beneficiaries may be eligible to receive any such
benefit.” Section 3(8) of ERISA defines a beneficiary to be
“a person designated by a participant, or by the terms of -
an employee benefit plan, who is or may become entitled to
a benefit thereunder.”
In accordance with the statements you submitted and
consistent with the language of section 3(8) of ERISA, we
believe those children of eligible individuals who are or
may become entitled to a benefit (scholarship) by the
terms of the Fund would be beneficiaries. We further
believe that those individuals meeting the elibigibility
criteria of the Fund would be participants in accordance
with section 3(7) of ERISA.
With respect to your inquiry concerning whether the
Fund is exempt from certain reporting and disclosure
App. 17
requirements of contain a limited reporting exemption for
certain dues financed welfare benefit plans as noted in
your letter. However, this regulation applies “only to
welfare benefit plans maintained by an employee organi-
zation ... paid for out of the employee organization’s
assets, which are derived wholly or partly from member-
ship dues...”
Since scholarship benefits, as provided by the Fund,
are funded by regular contributions and are held in trust,
we believe the limited exemption provided by section
2520.104-26 does not apply. Therefore we are of the opin-
ion that the Fund, as currently administered, would not be
exempt from complying with the Department’s regulations
regarding the summary plan description, summary of
material modifications, annual report and summary
annual report. However, if the Fund has fewer than 100
participants it may be eligible for the waiver of certain
requirements provided by section 2520.104-46 of the
annual reporting regulations (copy enclosed). This section
provides that the plan administrator of an employee
benefit plan that covers fewer than 100 participants at the
beginning of the plan year is not required to —
(1) Engage an independent qualified public account-
ant to conduct an examination of the financial statements
of the plan;
(2) Include within the annual report the financial
statements and schedules prescribed in section 103(b) of
the Act and §§ 2520.103-1, 2520.103-2, and 2520.103-10;
and
(3) Include within the annual report a report of an
independent qualified public accountant as prescribed in
section 103(a)(3)A) of the Act and § 2520.103-1.
App. 18
This letter constitutes an advisory opinion under
ERISA Procedure 76-1. Accordingly, this letter is issued
subject to the provisions of the procedure, including
section 10 thereof relating to the effect of advisory opin-
ions.
Ian D. Lanoff
Administrator
Pension and Welfare Benefit Programs
App. 19
Department of Labor.
Pension & Welfare Benefit Programs.
OPINION 79-8 A
January 30, 1979
REQUEST BY:
Mr. Robert W. Gilbert
Suite 305
400 South Beverly Drive
Beverly Hills, California 90212
Mr. Joseph M. McLaughlin
McLaughlin and Irvin
Suite 300
800 West Sixth Street
Los Angeles, California 90017
OPINION:
This is in reply to your letter of November 9, 1978,
requesting an advisory opinion concerning the eligibility of
Mrs. Joan Adams for participation in the Southern Cali-
fornia Retail Clerk Unions and Food Employers Council
Joint Pension Trust Fund (the Fund). Specifically, you ask
whether Mrs. Adams must be automatically precluded
from participating in the Fund by section 403(c)(1) of the
Employee Retirement Income Security Act of 1974 (ER-
ISA).
You represent that the Fund is a multiemployer fund
jointly managed by employer and employee representa-
tives and is subject to title I of ERISA. You also represent
that Mrs. Adams, who participated in the Fund from
September, 1971, until May, 1977, is the wife of the owner
of a 12 1/2 percent partnership interest in Vicente Foods,
where Mrs. Adams is employed and which contributes to
App. 20
the Fund on her behalf. You assert that Mr. Adams owns
his partnership interest as separate property, not as
community property.
The Department of Labor is of the opinion that Mrs.
Adams is not precluded from participating in the Fund by
section 403(cX1). Section 403(c)(1) of ERISA provides
generally that the assets of a plan shall never inure to the
benefit of any employer and shall be held for the exclusive
purpose of providing benefits to participants in the plan
and their beneficiaries and defraying reasonable expenses
of administering the plan. The term “participant,” as it is
used in ERISA section 403(c)(1), is defined in ERISA
section 3(7) to include “any employee ... of an employer
... who is or may become eligible to receive a benefit of
any type from an employee benefit plan which covers
employees of such employer . . . or whose beneficiaries may
be eligible to receive any such benefit.” ERISA section 3(6)
defines the term “employee” as “any individual employed
by an employer.” Regulation section 2510.3-3, which
interprets section 3(3) of ERISA for purposes of title I
thereof, provides, in part, that “[flor purposes of this
[regulation,] ... a partner in a partnership and his or her
spouse shall not be deemed to be employees with respect to
the partnership.” However, that regulation is not intended
to construe “employee” as that term is used in section 3(6)
of ERISA. Rather, the regulation defines “employee” only
for the limited purpose of determining whether a plan has
any employees, in connection with determining whether a
plan exists within the meaning of title I of ERISA. Since
the Fund appears to cover a number of employees and its
status as a plan under title I does not appear to be in
doubt, the definition of “employee” in regulation section
2510.3-3 has no relevance to the question of Mrs. Adams’
er aren ee
App. 21
status under the plan. Thus, Mrs. Adams, the wife of a
partner in the firm employing her, is a participant in the
Fund for purposes of section 403(c)(1) if she is employed by
a contributing employer and is otherwise eligible to
participate under the terms of the Fund as properly
administered according to all applicable laws and plan
documents.
This letter is not intended to interpret or express any
opinion concerning the Labor Management Relations Act
to which you referred in your inquiry or concerning any
other statute (other than ERISA title I and regulations
pursuant thereto).
This letter constitutes an advisory opinion under
ERISA Procedure 76-1. Accordingly, this letter is issued
subject to the provisions of the procedure, including
section 10 thereof relating to the effect of advisory opin-
ions.
Ian D. Lanoff
Administrator of Pension and Welfare Benefit Programs
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.