One of the cases I’ve covered on this blog since the beginning, was a lawsuit challenging CIGNA’s change from a traditional defined benefit plan to a cash balance plan.

In plain English, it was basically (and I’m oversimplifying) a conversion from a pension plan to a 401(k) plan.

That case has gone all the way up to the U.S. Supreme Court.

(And, in the interests of full disclosure, one of the named plaintiffs is a family friend who attended my wedding many years ago.)

Today comes word that the matter is reaching a conclusion, in a report by Mara Lee of The Hartford Courant.

Fifteen years after Cigna Corp. employees and former employees first sued over 1998 changes to the company pension plan, a federal court ordered the company in January to provide a list of all 27,000 people in the class-action lawsuit and how much each one is owed. There are 3,620 Connecticut residents in the lawsuit.

The conversion from a pension to a cash balance plan was legal, and did not discriminate against older workers, a U.S. District judge in New Haven found. But because the way the company described the changes was misleading, the court found Cigna liable for paying for what they are owed from the original pension, frozen at the end of 1997, plus additions to the lump sums the pensions were converted to.

Lawsuits like this one are rare. But after 15 years of pursuing the claims, the current and former employees look to finally get some closure on the matter later this year with payouts.  The exact amount is still to be determined but the company has reserved over $180M for the potential payouts.

For employers, the power of the Internet is pretty scary at times.

The latest meme to hit the Internet won’t change that view.

Sometime yesterday (Sunday) afternoon, someone tweeted a picture of a worker from a Target store.

His name is “Alex”. We know this because of his name tag. And apparently he’s cute and teenagers started retweeting his picture and lots of other tweets with his name.

Like hundreds of thousands of times.  And within 24 hours, his name has become one of the top 10 hashtags on Twitter — #AlexfromTarget.

There’s even a Buzzfeed article just devoted to him.  And Time magazine.  I’m sure we’re only hours away from The New York Times treatment too.

You might be scratching you head at this point.  Are you missing something?

As far as I can tell, no. He’s just a worker from Target. That’s it.

Target, to its credit, has been watching the social media streams and by this morning, had a tweet of their own.  “We heart Alex too”, it posted.


For employers, though, this latest meme is still yet another example of how the trivial can become the viral. How your retail stores are just one more place where average teenagers can become internet superstars literally overnight.

By now, I’ve preached about having a social media policy. But that policy really wouldn’t cover #AlexfromTarget.  What you also need is a social media response plan.

Andrea Obston, of Andrea Obston Marketing Communications, Inc., often preaches about how employers need to make sure to protect your brand during a crisis.

So far, Target is learning the lessons of the past by staying ahead of the curve.

Before your employees turn into internet memes, make sure you have a social media response team designated ahead of time.  Knowing who will respond and how, can be critical in preventing an internet meme from ruining your workplace.

Will Alex continue working at Target after all of this media scrutiny? We shall see.

So yesterday, I made a convincing case that employees who smoke outside the workplace can’t be treated differently than your non-smokers. 

But what about your health insurance plans? Doesn’t the state law prohibit your plan from imposing higher premium costs on those smokers?

Well on first glance it appears yes.  The state law would seem to apply.

But, dig deeper (and without getting too technical) and you’ll understand that there is a federal law — ERISA — that trumps that state law when it comes to insurance plans. 

Indeed, back in 2006, the Office of Legislative Research (one of the underappreciated government offices) wrote a report that said exactly that:

You asked if Connecticut law prohibits insurers or employers from factoring in whether a person smokes when determining insurance premiums or employee contributions for health care benefits. …

Connecticut law prohibits employers from discriminating against any individual who smokes outside the workplace with respect to compensation, terms, conditions, or privileges of employment (CGS § 31-40s). The Connecticut Department of Labor (DOL) interprets this law as not prohibiting an employer from having smokers contribute more toward health benefits than non-smokers due to preemption by the federal Employee Retirement Income Security Act (ERISA). To our knowledge, this issue has not been litigated in a Connecticut court. …

Since that time, the question remains undecided, but there is little reason to doubt the conclusion. Indeed, there’s much more to this area than a simple blog post can provide.  But employers who believe in healthy workplaces and want to keep their insurance premiums down do have a small arrow in their quiver to make it happen.

It’s rare for a case from Connecticut to make it all the way to the United States Supreme Court. But this week, a case did just that.

I’ve previously discussed the case of Cigna v. Amara in many posts which you can read here.  The case ultimately concerns the receipt of retirement benefits and whether documents about those benefits were misleading. But the narrower issue the court is now deciding concerns the type of proof and allegations that need to be presented in a class action of this type and what remedies are available. 

The American Bar Association has prepared a summary of the case and has summed up the issue that the court is to decide:

Must participants who are members of a class action suit prove detrimental reliance on an inaccurate summary plan description in order to receive a remedy under ERISA, or is the mere proof of “likely harm” enough to justify equitable relief?

Oral argument from that case is now available online.  A decision is expected sometime this spring. 

For those involved deeply with ERISA issues, it’s definitely worth a read.  There was an interesting back-and-forth discussion about what should happen when a summary plan description conflicts with the underlying plan documents.  Indeed, as noted in the argument, CIGNA conceded that its summary plan descriptions were deficient. But the issue, according to CIGNA, is what is the proper remedy:

My point I guess in this is that, yes, Justice Kagan, the statute requires the SPD to contain certain information.  We accept the fact of the conclusions of the court below in this case that they did not do so. There are two SPDs. They failed to live up to the requirements of ERISA. There is a remedy for that.

For everyone else, keep an eye on this case. It may provide some guidance to employers about how to oversee some plan issues when the case is decided next year. 

(Note: See a prior post for my familiarity with one of the class representatives. I have no involvement whatsoever in the case.) 

Let the politicians and the newspapers cite a new Second Circuit decision as being important for "saving jobs" in Connecticut. It makes for good press, but for employers, the decision is more important for a different reason than highlighted in the press: The Court has weakened one of the arguments that employers use to support their decisions — the "Business Judgment Rule".

First, the background about the case, District Local 26 v. United Technologies Corp. (download here) in general from the Hartford Courant:

A federal appeals court on Thursday upheld a decision barring Pratt & Whitney from closing its Cheshire plant and a smaller East Hartford unit, preserving hundreds of Connecticut jobs at least through early December.

The 2nd Circuit Court of Appeals in New York said U.S. District Court Judge Janet Hall properly found that Pratt violated its existing contract with the Machinists union by failing to make "every reasonable effort" to keep the two plants open.

Ok, that’s all well and good but it’s the second part of the decision that things get interesting. The Company argued that it was entitled to look at the EBIT (Earnings Before Interest & Taxes) savings — and only the EBIT-savings — and that the Court needed to defer to the company’s "business judgment". 

After all, the business judgment rule "is a presumption that in making a business decision the directors of a corporation acted on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the company."

But in contracts relating to the business of a corporation — including collective bargaining agreements — the Court held that companies surrender part of their ability to act. 

Each party fully exercises its business judgment by voluntarily entering into an agreement, thereby surrendering, to some extent, its free exercise thereof thereafter. Pratt cannot, then, by invoking the business judgment rule, effectively insulate from review whether it engaged in a good faith pursuit of work preservation by requiring that we defer to its method of accounting for its measures.

The decision here has larger implications than just union contracts. One could see the same rationale perhaps being applied to employment contracts and other business-related contracts that a company may enter into.  

Will it be applied still further into employment discrimination claims where courts have been willing to give a "business judgment rule" jury instruction? All those types of questions remain to be seen, but after the decision here, employers should not assume that the "business judgment" rule is the panacea that some still think it is.


Continuing our occasional series of interviews with people of interest to human resource professionals in Connecticut, today we talk with Mathew Krukoski, CPA of J.H. Cohn’s Glastonbury, CT offices. Matthew is a Partner there and we had the opportunity to talk about the importance of having auditors review employee benefit plans, particularly as that employer grows. 

We’ll have some more of these types of interviews over the next few weeks as well.

1. You’ve been doing a lot more audits lately. For a company that is growing, at what point do they need to start bringing in an auditor to review their employee benefit plans?

A compliance review can be performed at any time. However, generally speaking, the Department of Labor requires an audit when a Company’s employee benefit plan exceeds 100 eligible participants at the beginning of the plan year. For growing companies with an existing plan, the filing requirements contain a provision, known as the "80-120 Participant Rule", that allow a plan sponsor to elect a deferral of the audit requirement until participation has exceeded 120 eligible participants at the beginning of the plan year. Once participation in a plan reaches 121 eligible participants or more, an audit will be required.

2. What types of tasks do you perform during an employee benefit plan audit?

An audit of a plan is not only for compliance with accounting principles generally accepted in the United States of America but also requires a review of its operations for compliance with Department of Labor and Internal Revenue Service laws and regulations. Procedures typically include a review of the plan’s internal control environment, testing of pertinent plan transactions (i.e., contributions, distributions, participant loans, etc…) and to ensure consistent application of the plan’s provisions. A sample of plan transactions are reviewed and tested at the plan level as well as for individual plan participants. The end product of an audit is a complete set of financial statements and auditor’s opinion that are required to be attached to the plan’s Form 5500 filing.

3. What are some common issues that you see when doing an audit?

Our audit compliance testing have revealed errors related to the calculation of participant contributions, the calculation of employer matching or profit-sharing contributions, the distribution of appropriate vested account balances and the utilization of a plan’s stated definition of compensation. However, for contributory defined contribution plans, the most common deficiency relates to the timely remittance of employee contributions.

4. A big topic of discussion lately has been the new 403(b) Plan Requirements. Can you talk about that a bit and what employers ought to be considering with respect to these plans?

In the past, sponsors of 403(b) plans had very limited reporting requirements. Beginning with the 2009 Form 5500 filings, the reporting requirements of these plans will become more in line with that of traditional 401(k) plans, including the Department of Labor’s audit requirement. Obviously, employers of large plans will need to engage an independent qualified public accountant to perform the audit of their 403(b) plan. However, the first item that a plan sponsor should focus on is the preparation of their plan records. This may involve talking with their ERISA attorney to clarify the need for an audit, talking with their service provider for the timing and availability of the plan’s financial information and potentially engaging the services of a third-party administrator to coordinate the recordkeeping and other compliance aspects of plan administration. Plan sponsors of 403(b) plans will need to allocate a significant amount of time and resources this year to understand and comply with the new reporting requirements.


Continue Reading Five Questions with… Mathew Krukoski, CPA on Employee Benefit Plan Audits

To work on State of Connecticut contracts with the Department of Transportation, various contractors have to set up an affirmative action plan.  If they do not have one on file with the DOT, the Department’s Division of Contract Compliance will send out the following letter.

So what to do if you don’t have a plan? Well, the DOT goes on to provide a sample Affirmative Action Plan (which has been in place since November 2008).

The DOT sample plan has more than just a specific policy regarding affirmative action;  it has sample policies relating to complaint procedures to sexual harassment prevention to maternity leave.

When the government prepares documents, the conventional wisdom is that employers should adopt them. After all, if the government has suggested them, they must be fine.

Here, however, employers may want to think twice and consider modifying them to add provisions that may suit their workplace.  For example, if your workplace is covered by the state and federal FMLA rules, you may need only to tweak the policy to make sure it is explicit that maternity leaves are covered as well.

The maternity leave policy, as proposed by the DOT, is awkwardly worded and written in a style that is far from the "plain-English" style hat is so routinely advocated for personnel policies nowadays.  For example, the policy actually quotes from a 1973 public act (and identifies it by statute) regarding pregnancy discrimination.    Perhaps the DOT can take a cue from one of my fellow "Legal Rebels", Ken Adams, and cut out some of the legal jargon in the next version of these documents.

The sexual harassment policy also appears a little bare bones as well. For employers, the easy solution may be to simply adopt the state’s proposed ones, but the best solution may be to craft a policy that fits your workplace better.


Although I’ve been sounding the alarm bells for the last two months or so, on the new COBRA subsidy provisions, I’ve had informal discussions with various colleagues that suggest that some employers are either ignorant of the new rules or do not believe that the rules apply to them. Here are three areas why most employers in Connecticut need to be concerned.

1.     State Mini-COBRA Laws Will Piggyback on the New Federal COBRA Subsidy.  While federal COBRA only applies to employers withCourtesy Morgue File 20 or more employees, Connecticut has a parallel COBRA statute that applies to all other employers with group health plans (except those that self-insure).  Why is this important? Because the new federal COBRA subsidy provisions will ALSO apply to those employees who are covered under a state COBRA rule as well.

The rules are slightly different. For example, if the state mini-COBRA rules apply, the insurer is responsible for sending out notices to former employees who may be eligible for assistance.  In addition, the extended election period that, in essence, reopens the period for former employees to elect COBRA, does not apply for employers subject only to the state mini-COBRA.

Thus, for employers with less than 20 employees, you may still need to comply with the new COBRA subsidy provisions.

2.     There Are Significant Penalties for Failure to Provide Notices by April 18, 2009.  With the deadline to send out notices — particularly to former employees — coming up as early as Saturday, April 18, 2009 for many situation, employers who are scrambling to get the work done may be considering just postponing it.  However, any such postponement carries with it significant risks. 

Although the new law appears to be silent as to the exact penalties that will apply, it appears the standard penalties under COBRA or other federal laws may apply. Thus, plan sponsors (mostly likely, employers) who fail to provide the notice could be subject penalties of up to $110 per day under ERISA and an excise tax penalty of $100 per notice (with limits) under the Internal Revenue Code. The penalty or excise tax may apply to each Qualified Beneficiary. In addition, individuals may have a cause of action to sue for COBRA coverage and receive the benefits that should have been offered, as well as attorneys’ fees and “other relief.”

3.      Employers That Pay COBRA Premiums Under a Severance Plan or Agreement May Want to Modify Them.  The most recent guidance provided by the federal government clarified that the subsidy applies only to amounts actually charged to the assistance eligible individual for COBRA continuation coverage. Therefore, employers who contribute to an assistance eligible employee’s COBRA premium will not be able to recapture this amount.  As a result, these employers may want to consider restructuring their severance policies so that they can get a tax credit for those amounts.


There’s much more to the new COBRA subsidy rules than first meet the eye. If you’re still confused, it’s not too late to sign up to the teleconference that I’ll be giving this Friday, through BLR

As always, consult with a local attorney to determine how the new law applies to your business.