Claim Administrator May Offset Long Term Disability Payments Payable To Plaintiff By Amount of Social Security Disabilit

March 2009

The plaintiff in this case worked as a tax attorney for Keyspan Corporation from 1993 until February 1, 2004. During her tenure at Keyspan, she was a participant in the company's group long term disability plan. Hartford Life Insurance Company insured the plan and administered claims for benefits under the plan.

The plaintiff received long term disability benefits from May 2004 through June 2006, after Hartford determined she was disabled due to complications from multiple sclerosis. Hartford paid these benefits subject to a provision in the plan that entitled Hartford to recover any overpayments that should have been offset by a beneficiary's receipt of "Other Income Benefits," such as Social Security Disability Income (SSDI) payments. In June 2006, Hartford denied the plaintiff's claim for continuing long term disability benefits and subsequently denied the plaintiff's administrative appeal of that decision.

While the administrative appeal was pending, the Social Security Administration informed the plaintiff that she was eligible to receive retroactive SSDI benefits in the amount of $1,804 per month dating back to July 2004. In light of the plaintiff's disability, her children also were awarded SSDI benefits in the amount of $902 per month as of July 2004. Hartford advised the plaintiff that, in light of the retroactive SSDI payments, it believed she had received $68,108.43 in overpaid benefits under the plan.

Following Hartford's request for restitution of the alleged overpayments, the plaintiff brought suit against the plan and Hartford seeking a declaratory judgment that she was entitled to the full amount of the long term disability benefits Hartford paid to her under the plan. The defendants filed an answer asserting a counterclaim that they were entitled to offset the plaintiff's monthly long term disability payments by the amount of SSDI payments made to her and her dependent children. In response, the plaintiff asked the court to allow her to amend her complaint to assert a claim on behalf of herself and a proposed class of plaintiffs who alleged that Hartford improperly offset their long term disability benefits by the amount of SSDI payments their dependent children received. The defendants argued that the proposed amended claim was futile because the plan clearly permitted Hartford to make such an offset.

The plaintiff did not dispute that the plan permitted Hartford to offset her long term disability benefits by the amount of SSDI benefits she received. However, the plaintiff argued that the plan did not give Hartford the authority to offset her benefits by the amount of SSDI payments her dependent children received.

The court observed that the plan provided that monthly benefits could be offset by the amount of "Other Income Benefits" received by the beneficiary. The plan defined "Other Income Benefits" as "any benefit for loss of income, provided to you or your family, or to a third party on your behalf as a result of the period of Disability for which you are claiming benefits under this plan." The "benefit" referred to in the plan, the court noted, included SSDI benefits and any benefits under a "similar act or plan that the [beneficiary], [the beneficiary's spouse] and children are eligible to receive because of [the beneficiary's] Disability." (emphasis added). The plan also provided that Hartford had the right to recover "any amount that is an overpayment of benefits under [the] plan." Overpayments were defined in the plan to include "retroactive awards of Other Income Benefits."

The court found that the "plain, clear and unambiguous import of these provisions" was that Hartford was permitted to offset the plaintiff's long term disability benefits by the amount in SSDI benefits she and her dependent children received because of her disability. The court noted that offset provisions were frequently used by insurers to avoid creating undesired incentives whereby disabled participants actually received more income on disability than they received while working. The court pointed out that the U.S. Court of Appeals for the Second Circuit upheld the general enforceability of such provisions in Leonelli v. Pennwalt Corp., 887 F.2d 1195 (2d Cir. 1989), and that several other courts have specifically permitted insurers to offset benefits by the amount received by a beneficiary's dependent children pursuant to similar contractual provisions. See First Unum Life Ins. Co v. Wulah, 2007 U.S. Dist. Lexis 82650 (S.D.N.Y. Oct. 8, 2007) (upholding a provision that allowed an insurer to seek reimbursement for SSDI benefits paid to a participant and his family); Bergquist v. Aetna Healthcare, 289 F. Supp. 2d 400 (S.D.N.Y. 2003) (same); Camarda v. Pan American World Airways, 956 F. Supp. 299 (E.D.N.Y. 1997) (same); Sarosy v. Metro. Life Ins. Co., 1996 U.S. Dist. Lexis 10765 (S.D.N.Y. July 30, 1996) (same).

Accordingly, because the plan allowed Hartford to offset the plaintiff's benefits and those of any other similarly situated beneficiary by the amount of SSDI payments a beneficiary's dependent children received as a result of their parents' disabilities, and because such provisions were enforceable, the court denied as futile the plaintiff's motion to amend the complaint. [Fortune v. Group Long Term Disability Plan For Employees Of Keyspan Corp., 2008 U.S. Dist. Lexis 97042 (E.D.N.Y. Nov. 29, 2008).]

ADA Claim That Pre-Hiring Drug Test Showed A Positive Result For A Prescription Drug, Leading To Employment Offer Being Rescinded, May Proceed To Trial

In this case, the plaintiff alleged that she interviewed with the president of First Personal Bank for the position of senior vice president of commercial lending. The plaintiff asserted that she received a letter from the president formally offering her the position of senior vice president and senior lending officer. The letter stated that the plaintiff's employment was contingent upon her satisfactory completion of a pre-employment drug test. Prior to the drug test, the plaintiff informed the bank's president that she had recently received a cervical epidural shot procedure, lawfully prescribed to her by her physician, which might result in additional medication showing up on the test. The test indeed showed a positive result for phenobarbital. Upon learning of the test results, the bank president called the plaintiff and rescinded the offer of employment. The plaintiff contacted the bank president to remind him that she was on a variety of medications for various medical conditions and offered to have her physicians verify the medications they had prescribed. The bank president refused her offer and told her that the decision to rescind her offer of employment was final. She then filed suit against the bank, alleging violations of the Americans with Disabilities Act of 1990.

The bank moved to dismiss the plaintiff's claim that alleged that the bank followed a preemployment drug testing policy and a drug screening process that prohibited the use of all legally prescribed medications, in violation of the ADA. The bank made two arguments in support of its motion to dismiss. First, the bank argued that the drug test administered to the plaintiff did not violate the ADA because the drug test was not a medical exam. Second, the bank contended that the plaintiff's claim was insufficient because it did not allege that her job offer was withdrawn based on a disability or a perceived disability.

In denying the bank's motion, the court first noted that a motion to dismiss tests the sufficiency of a complaint, not the merits of the case. The court then explained that the ADA generally prohibits discrimination against "a qualified individual with a disability." With respect to medical examinations and inquiries, Section 12112(d) provides separate rules depending on whether the individual is a job applicant, an applicant with an offer who has not yet begun working, or an employee.

Subsection (d)(1) first states that, generally, "[t]he prohibition against discrimination as referred to in subsection (a) of this section shall include medical examinations and inquiries." With respect to job applicants who have not received an offer, subsection (d)(2) provides that an employer may only make preemployment inquiries of an applicant's ability "to perform job-related functions" but not into whether the applicant is disabled. Under subsection (d)(3), which applies to an applicant who has received an offer of employment but who has not yet started work (applicable to the plaintiff in this case), the employer may require a medical examination and make an offer of employment conditional on the results of such examination so long as (1) all employees are subject to such inquiry; (2) information obtained is maintained on separate forms and in separate files and treated as confidential; (3) the results of the examination are "only used in accordance with this subchapter." Regarding the third requirement that the results should only be used "in accordance with this subchapter," the court explained that this meant "as long as the employer does not discriminate on the basis of the applicant's disability." (It should be noted that under subsection (d)(4), which applies to employees, the employer may not inquire into whether an employee suffers from a disability unless any such examination is "job-related and consistent with business necessity.")

In support of its first argument, the bank relied on Section 12114(d)(1), which provides: "a test to determine the illegal use of drugs shall not be considered a medical examination." The bank argued that because tests to determine the presence of illegal drugs do not constitute medical examination under the ADA, the plaintiff's claim should be dismissed because it was based on the premise that the drug test administered to the plaintiff was a medical examination.

The plaintiff responded that the drug test she was administered was a test for the use of legal drugs in addition to illegal ones and therefore not the type of test contemplated by Section 12114(d)(1). According to the plaintiff, because the decision to rescind her offer was based on the result of the exam, the bank was required to show that its exclusionary criteria were job-related and consistent with business necessity. The plaintiff claimed that the bank made its decision to rescind her offer pursuant to its alleged drug policy that prohibited the use of all legally prescribed medication without regard to whether such medication was related to whether she could perform her job responsibilities. She claimed that the preemployment drug test, as administered to her, served as a blanket exclusionary test that left no allowance for the legal use of controlled substances.

The court found that, for purposes of the ADA, tests to determine illicit drug use were "clearly not medical examinations." However, it continued, a test for illicit drug use may also, as in this case, return results for legal drug use that could affect the functioning of the employee in the specific job setting. The court stated that a "sensible reading" of the statute instructed that an employer may only rely on a test for illicit drug use to make employment decisions based on that illicit use. A problem arises when, as here, licit drug use appeared on the applicant's drug test results and the employer takes some action based on those results. The court found that "exemption for drug testing was not meant to provide a free peek into a prospective employee's medical history and the right to make employment decisions based on the unguided interpretation of that history alone" and noted that a "preemployment drug test may not be administered under the guise of testing for illicit drug use when in fact the results are used to make employment decisions based on both legal and illegal drug use alike."

At this stage in the case, the court ruled, the plaintiff had sufficiently alleged that the bank's drug test was "more than a mere test for illicit drug use" and that the bank used the drug test "to prohibit the use of even legally prescribed medication" without regard to whether such medication would impair the plaintiff's ability to effectively perform her job.

Interestingly, the court added, with respect to the bank's second argument (namely, that the plaintiff's claim failed to state a claim because it did not contain allegations that the bank withdrew its offer of employment based on the plaintiff's disability or perceived disability), "the weight of authority" supported the rule that a job applicant alleging an impermissible preemployment disability related inquiry did "not have to suffer from a disability or be perceived as disabled in order to find protection under the statute." The court then denied the bank's motion to dismiss the plaintiff's claim. [Connolly v. First Personal Bank, 2008 U.S. Dist. Lexis 94248 (N.D. Ill. Nov. 18, 2008).]

Policy's Provision Barring Suit After Two Years Dooms Reimbursement Claim

In 1995, a young girl began receiving treatment at various medical facilities for anxiety, mood instability, and behavioral problems. In 2003, the girl was 15, living with her family and receiving outpatient therapy; problems she was experiencing at the time (e.g., substance abuse, self-mutilation) culminated in a run-away episode. The girl was covered by a Blue Cross Blue Shield of Massachusetts health policy as part of an employment benefit package provided by her mother's employer.

The day after the girl's run-away episode, her family (on her therapist's recommendation) took her to Island View Residential Treatment Center, where she received a multi-part diagnosis and was admitted for treatment. The girl was initially diagnosed with mood disorder, oppositional defiant disorder, drug and alcohol abuse, and parent-child relationship issues. Island View deemed in-patient treatment necessary because of the girl's history of running away, serious drug and alcohol abuse, and her refusal to take medications.

The girl spent about 14 months at Island View. At first, the girl admitted to some depression, feelings of guilt, anxiety and low self esteem. In August 2003, suicide became a concern for several months. The girl was discharged in June 2004, although a few months later she entered a different treatment center where she remained for almost a year.

When benefits were first sought for the Island View treatment that commenced in spring 2003, Blue Cross determined that the girl's medical needs could be met by less intensive care and rejected reimbursement requests for the spring period. Blue Cross later authorized payment for treatment received between August 13, 2003 and October 22, 2003 at Island View, after the girl's condition worsened and she exhibited suicidal tendencies, but Blue Cross refused to pay for earlier or later portions of the girl's stay.

Following Blue Cross's denial, three external reviews were conducted. Two of the independent reviews were conducted by outside medical professionals selected by an independent review agency. The third review was conducted by the Office of Patient Protection of the Commonwealth of Massachusetts, which independently upheld the denial on November 12, 2003. All the reviewers agreed with Blue Cross's denial of benefits.

On April 21, 2006, the girl, her mother and Island View as assignee brought suit in federal district court under ERISA for denial of benefits. The court granted summary judgment in favor of Blue Cross, disposing of the claim primarily on the ground that the suit was disallowed by a provision in the Blue Cross contract barring suit after two years, though the court also found that Blue Cross's denial of benefits was not arbitrary or capricious. The plaintiffs appealed, arguing that the court erred in not recognizing as controlling a state statute of limitations providing three years for suit.

In its decision, the U.S. Court of Appeals for the First Circuit explained that ERISA supplied no statute of limitations so federal courts borrow the relevant statute of limitations from the forum state. Typically, a claim for benefits under an ERISA health plan would be treated by analogy to a contract claim, the benefits contract being the substantive source of the obligation. In this case, however, Blue Cross offered as a defense, and the district court sustained, not a statute of limitations but a contractual bar, namely, an explicit requirement in the Blue Cross insurance contract requiring that suit be brought within two years of the denial of benefits. The circuit court noted that Massachusetts explicitly permits such a provision for health insurance suits so long as the time allowed is not less than two years after the denial. Here, denial of coverage took place on November 12, 2003 when the Massachusetts agency upheld the denial of benefits after Blue Cross and two independent reviewers had already done so; the lawsuit was filed in April 2006 and thus barred by the contractual limitation contained in the Blue Cross contract.

The First Circuit then rejected the argument that because the girl was a minor until she turned 18 on September 24, 2005, the time period in which she could sue had to be tolled. The circuit court explained that whatever role such tolling provisions might play in an ERISA suit for which a statute of limitations defense was asserted, Blue Cross had not invoked a statute of limitations defense but rather a contractual time limit in the Blue Cross contract itself. It observed that the main stakeholders appeared to be Island View, which provided the treatment and, presumably, the girl's mother, who as the parent likely took responsibility for the bills when checking her daughter into the facilities. There was no indication that the girl was being held liable for bills contracted as a minor, and thus the circuit court concluded that the suit was not timely filed. [Island View Residential Treatment Center v. Blue Cross Blue Shield of Massachusetts, Inc., 548 F.3d 24 (1st Cir. 2008).]

Court Rejects Plaintiff's Claim For Benefits, Finding He Failed To Show Reasonable And Detrimental Reliance On Company's Electronic Benefits Information System

As an employee of Schlumberger Technology Corporation, the plaintiff in this case participated in the Schlumberger Technology Corporation Pension Plan. The plaintiff was terminated on February 4, 1999 and began receiving pension benefits in November 1999. The plaintiff sued Schlumberger in October 2000 and settled on confidential terms in October 2001; the company reinstated the plaintiff on November 1, 2001. During the period between his termination and reinstatement, the plaintiff received $40,098.25 in pension payments from the plan. When he retired from Schlumberger and began receiving pension payments from the plan in February 2007, his benefits were reduced because of the earlier payments.

The plaintiff sued the plan, arguing this reduction was not permitted under the legal doctrine of "estoppel" because he relied upon the plan's statements that his benefits would not be reduced. The plaintiff asserted that he relied upon statements in the summary plan description and the Schlumberger Automated Benefits Link (SABL), an electronic benefits information system, in settling his 2001 lawsuit. The district court granted the defendant's motion for summary judgment, and the plaintiff appealed.

In its decision, the U.S. Court of Appeals for the Fifth Circuit explained that, to establish an ERISA estoppel claim, a plaintiff must prove: (1) a material misrepresentation, (2) reasonable and detrimental reliance upon the misrepresentation, and (3) extraordinary circumstances. The circuit court focused on whether the plaintiff had reasonably and detrimentally relied upon the SABL statements in settling his lawsuit. It noted that the plaintiff had introduced no evidence that he had accessed SABL in the period between his termination and reinstatement, when he decided to settle his suit; did not submit any printouts of SABL statements dated before the settlement; and his affidavit did not assert that he used the system during this period.

Moreover, the circuit court noted that the Administrative Support Manager for the Plan stated in an affidavit, "An active employee's pension benefit estimate first became available on SABL as of February 1, 2002. Before that date, individual pension benefit estimates were not available on SABL." She further explained that only active employees could obtain this information through SABL - but the plaintiff was inactive between his termination and reinstatement. In light of this affidavit, the circuit court found that the plaintiff's assertions, "I periodically downloaded SABL's statements of my accrued pension balances both before and after my settlement of my lawsuit" and "In reliance upon . . . SABL's statement of my accrued pension balance, I settled my lawsuit," did not establish a genuine issue of material fact.

In any event, the Fifth Circuit declared that even if a genuine issue of material fact existed as to whether the plaintiff had accessed SABL in the period between his termination and settlement, no issue existed as to whether that reliance was reasonable. The circuit court pointed out that the SABL statements submitted by the plaintiff clearly stated, "This is only an estimate and is not a guarantee of a benefit. Your personal data in SABL is taken from many different sources and is subject to correction." If the plaintiff intended that the settlement have a particular effect on his pension benefits, then he was unreasonable unilaterally to rely upon an informal estimate of pension benefits instead of negotiating for this result, the circuit court concluded.

The plaintiff argued that in settling, he intended that his later retirement benefits would not be reduced by the benefits received during this period, effectively allowing him to receive the same benefits twice. Even if the plaintiff had gained access to the SABL estimates, the circuit court found that it was unreasonable for him to assume this outcome, rather than negotiating for it as part of the settlement. This assumption, the Fifth Circuit ruled, was particularly unreasonable in light of the plan's terms: "Any distribution . . . shall, to the extent of any such distribution, fully release and discharge the Trustee, the Administrator and the Employer from any and all claims of the Participant." While this provision did not prevent the plaintiff from pursuing an ERISA estoppel claim, it did mean that the plaintiff was unreasonable in his belief that he could collect the same benefits twice, the circuit court concluded. [Bratton v. Schlumberger Technology Corporation Pension Plan, 2008 U.S. App. Lexis 23371 (5th Cir. Nov. 12, 2008).]

Where "No Significant Reduction" In Benefits Was Expected As A Result Of Adoption Of Cash Balance Plan, Notice To Employees Was Not Necessary

Prior to 1998, the plaintiffs in this case were beneficiaries of defined benefit pension plans at Atlantic City Electric Company and at Delmarva Power & Light Company. The two companies merged in March 1998 to form Conectiv, and on April 23, 1998, the new board of directors amended the pension plans and adopted a cash balance plan, effective January 1, 1999. Conectiv mailed a "Facts" newsletter and a decision kit to its employees informing them of the amendment to the pension plan and explaining the cash balance plan.

In September 2005, the plaintiffs commenced litigation challenging the validity of the new pension plan under ERISA, arguing among other things that the defendants violated ERISA Section 204(h) by failing to provide timely and adequate notice of the adoption of the cash balance plan. The district court granted summary judgment for the defendants, and the plaintiffs appealed.

The U.S. Court of Appeals for the Third Circuit affirmed. It observed that, at the time of the plan amendment, Section 204(h) stated that a pension plan "may not be amended so as to provide for a significant reduction in the rate of future benefit accrual, unless, after adoption of the plan amendment and not less than 15 days before the effective date of the plan amendment, the plan administrator provides a written notice [to each participant]." Under this provision, notice was required only if the amendment was "reasonably expected to [significantly reduce] the amount of the future annual benefit commencing at normal retirement age . . . taking into account the relevant facts and circumstances at the time the amendment was adopted."

The appellate court explained that under the regulations in effect on April 23, 1998, the date the amended plan was adopted, "an amendment to a defined benefit plan affects the rate of future benefit accrual only if it is reasonably expected to change the amount of the future annual benefit commencing at normal retirement age [of 65]." This determination, the appellate court continued, must "tak[e] into account the relevant facts and circumstances at the time the amendment is adopted." Thus, to determine whether no significant reduction was to be reasonably expected, and therefore no need for notice to be given, the district court examined the individual plaintiffs' benefits and the relevant facts and circumstances as of April 23, 1998.

The parties disputed the appropriate method for calculating the impact of the cash balance amendment. At trial, the defendants' expert witness calculated that future benefits at retirement for each individual would be expected to increase under the new cash balance plan if salaries were held constant at 1999 levels. Plaintiffs attacked the defendants' expert's assumption that wages would experience zero growth, and offered instead their own expert analysis showing that future benefits decreased when using a 4.5 percent salary growth assumption (a figure used in the defendants' 1999 Securities & Exchange Commission filings for aggregate labor costs).

The circuit court declared that it was "not convinced" by the projections provided by the plaintiffs' expert, finding the defendants' analysis on the whole to be more persuasive. It stated that the plaintiffs' expert's assumption that the defendants' labor costs would increase by 4.5 percent each year from 1999 until the plaintiffs retired at age 65 did "not explain why management employees' future salaries could be expected to keep pace with the company's labor costs for all employees." Nor did the plaintiffs' expert explain how, on April 23, 1998 the defendants were to reasonably predict each of the plaintiffs' salaries until each of their respective retirements. Indeed, in the preceding five year period from 1994 to 1999, one plaintiff saw a nearly zero wage increase, from $56,237.84 to $56,824.37, and another received average wage increases of only 1.4 percent per annum, from $59,267.75 to $63,522.62.

Having determined that the "cash balance" amendment would not have been reasonably expected to result in a "significant reduction in the rate of future benefit accrual," the circuit court concluded that no notice was required and therefore it did not have to address the issue of whether the "Facts" newsletter and the decision kit, and other informational letters Conectiv sent, constituted timely and adequate notice. [Charles v. Pepco Holdings, Inc., 2008 U.S. App. Lexis 23248; (3rd Cir. Nov. 4, 2008).]

Appellate Court Rejects Challenge To ERISA Plan's Investments In Company Stock

The plaintiff in this case was formerly employed by Lucent Technologies, Inc. On September 30, 2000, he became an employee of Avaya, Inc., when Avaya was spun off from Lucent. In the course of the spin-off, Avaya established three ERISA plans: the Avaya Inc. Savings Plan for Salaried Employees (the Salaried Plan), the Avaya Inc. Savings Plan (the Union Plan), and the Avaya Inc. Savings Plan for the Variable Workforce (the Variable Plan). The Salaried and Union Plans were successors to similar ERISA plans maintained by Lucent (the Predecessor Plans).

All of the Avaya plans were explicitly required to offer participants the option of investing in the Avaya Stock Fund, which consisted of shares of Avaya common stock. Additionally, the Predecessor Plans were required to offer Lucent employees the opportunity to invest in Lucent common stock. Contributions by Avaya employees who had invested in the Predecessor Plans prior to the spin-off were automatically transferred to the Salaried Plan or the Union Plan. Pursuant to that transfer, Lucent stock invested in the Predecessor Plans was transferred to the plans' Lucent Stock Fund which, similar to the Avaya Stock Fund, consisted of shares of Lucent common stock.

The crux of the plaintiff's complaint was that Avaya experienced serious financial difficulties after the spin-off. He asserted that the price of Avaya's stock, which began trading at $22.88 a share immediately after the September 2000 spin-off, declined drastically, falling to a low of $1.15 a share on August 2, 2002. The plaintiff also alleged that despite Avaya's financial difficulties, Avaya's Pension and Employee Benefits Investment Committee (the Committee) allowed investment in Avaya stock, both immediately following the spin-off and during the period of deteriorating stock prices for both companies.

Based on these allegations, the plaintiff asserted that the defendants had breached their fiduciary duty under ERISA, alleging that the defendants failed to conduct an adequate investigation of Avaya securities and the Avaya Stock Fund, and that they were not prudent investment options. The district court rejected those claims, holding that the plaintiff had failed to plead sufficient facts to overcome the presumption that the defendants had acted within their discretion by investing in the Avaya Stock Fund, and the plaintiff appealed.

The U.S. Court of Appeals for the Third Circuit affirmed. It explained that, in the context of an ERISA plan that offers employees the option of investing in a fund consisting solely of the employer's own securities, there was a "presumption that a fiduciary acted prudently in investing in employer securities" and that, to rebut the presumption, a plaintiff "must show that the ERISA fiduciary could not have believed reasonably that continued adherence to the [Plan's] direction was in keeping with the settlor's expectations of how a prudent trustee would operate." In determining whether a plaintiff made that showing, the circuit court continued, courts had to "be cognizant that as the financial state of the company deteriorates . . . fiduciaries who double as directors of the corporation often begin to serve two masters. And the more uncertain the loyalties of the fiduciary, the less discretion it has to act." However, it added, courts also must be aware that "if the fiduciary, in what it regards as an exercise of caution, does not maintain the investment in the employer's securities, it may face liability for that caution."

The Third Circuit then found that the plaintiff's complaint was insufficient to overcome the presumption that it was prudent to invest in the challenged securities. It pointed out that while Avaya's stock lost much of its value immediately after the spin-off and by August 2, 2002 reached a low of $1.15 a share, the share price rose following the end of the class period to trade as high as $16.00 per share. The circuit court found that the plaintiff's complaint failed to point to anything other than Avaya's financial struggles to support his breach of fiduciary duty claim. Thus, at most, the plaintiff's allegations, if true, indicated that during the period when the stock price fell, Avaya was "undergoing corporate developments that were likely to have a negative effect on the company's earnings and, therefore, on the value of the company's stock." That alone did not suffice to rebut the presumption that the defendants acted within their discretion in refusing to halt or alter investments in Avaya stock, the circuit court concluded. [Ward v. Avaya Inc., 2008 U.S. App. Lexis 23411 (3rd Cir. Nov. 13, 2008).]

Comment: The Third Circuit noted in its decision that short term financial difficulties do not give rise to a duty to halt or modify investments in an otherwise lawful ERISA fund that consists primarily of employer securities.

Reprinted with permission from the March 2009 issue of the Employee Benefit Plan Review - From the Courts.  All rights reserved.



Norman L. Tolle, Partner


Insurance Coverage & Litigation

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