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Beware of ERISA
(Employee Retirement Income and Security Act)
by Atty. Michael H. Agranoff
General Background
I had worked in a large international financial corporation,
headquartered in Hartford, CT, from 1968-1988. Let’s call it
“the Company”. It makes no difference which one; the
Company is no worse than other giants, and is actually better
than many. I left in 1988 and became self-employed; earning less
money, but sleeping far easier at night.
My late wife started working at the Company in 1974.
Group Life Insurance
All employees of the Company had a modest amount of
non-contributory (free) group life insurance. For the year 2000,
it was $20,000.00.
Employees could also purchase contributory group life
insurance for a small fee. You had to buy it in multiples of
your annual salary.
For the year 2000, my wife had 3-times salary. Thus, at her
salary of $83,000.00 a year, she paid for $249,000.00 worth of
group life insurance.
Therefore, in the summer of 2000, she had a total of
$269,000.00 worth of group life insurance.
In that summer, she decided to increase the amount of her
contributory group life insurance to 5-times salary. To do so,
she was required to take a physical exam. She took it and
passed, and was notified in August of 2000 that she had been
approved for an increase to 5-times salary.
Since it was group life insurance, all increases would take
effect as of the first of the year. The non-contributory portion
was due to increase to $25,000.00 for all employees. Her
contributory portion would increase to $415,000.00. Thus, as of
January 1, 2001, my wife would have $440,000.00 worth of group
life insurance.
Or so we thought.
Cancer Diagnosis
For Thanksgiving of 2000, we went to Georgia, as was our
custom, to visit our daughters and grandchildren who lived
there. As usual, we walked for exercise. One fine day, at the
end of a walk, my wife’s leg suddenly gave out. She could barely
make it back to the room. No one could figure out what was going
on, and someone gave her a cane to get her through. Upon
returning home, she went to her doctor, who sent her to the
orthopedist, who ordered an MRI. The doctors discovered
that she had inoperable metastasized
lung cancer.
My wife was very brave, and planned for death at age 57. She
had numerous conversations with employee benefits people at the
Company, who helped her through short-term disability, long-term
disability, and other options. She never went back to the
office, but had a computer at home linked to work (as did many
employees) and communicated regularly with her unit, doing
whatever she could. She could, in fact, have gone in to the
office, in her wheelchair, but everyone encouraged her to stay
at home on disability pay. She was happy to work on the computer
from home, although she did complain that her management made it
clear that they wanted nothing to do with her. I felt bad about
that, but as a business owner myself, I could understand their
position.
My wife and I had wills that left everything to each other.
Nevertheless, she told me how she wanted everything divided,
trusting that I would do as she wished. She gave away virtually
all of her jewelry before she died, and certain other household
possessions that were of no practical use to me. Based on the
$440,000.00 worth of group life insurance, and some other
insurance, and her savings, my wife told me how much I should
give to each of the three adult children (her two and my one).
Starting in January, 2001, the extra premium for the
increased contributory group life insurance starting coming out
of her pay checks. On July 4, 2001, she watched the fireworks at
our Lake house, with friends and relatives in close attendance.
The next day, she died.
Insurance Denial
As Executor, I had considerable work to do, and among other
things filed a claim for $440,000.00 of group life insurance
benefits. It was denied; only $269,000.00 was approved, which
represented the year 2000 benefits.
The extra premiums that had been taken out of her pay check
were duly refunded to me.
My children, step-children and I were, in my opinion, cheated
out of 171,000 tax-free dollars.
Company Reasoning
Buried within a paragraph inside a 70-page single-spaced booklet
on group life insurance benefits was a clause stating that
increased life insurance benefits would be ineffective unless
the employee was actively at work for some period during the new
effective year.
My wife did not physically show up at the office during the
year 2001. Hence, her approved new benefits were denied, and she
was paid at year 2000 rates.
THE COMMON LAW
There are at least two reasons why the Company’s argument
would fail in ordinary State courts under the common law.
Estoppel
The first is called “estoppel”, which is a lawyer’s fancy way of
saying that you cannot assert a claim or a fact in court, even
if it is otherwise valid or true, when you have previously
asserted or implied the contrary, and it would be unfair to the
other person to allow you to make that claim in court.
In other words, estoppel says that even if the law is
technically on your side, principles of equity or fairness may
prevent you from winning, if your own statements or conduct
prejudiced the other side.
Here are three realistic examples:
- A man acts as the father of a child for years. Suddenly he
says that he is not really the father, and wants a blood test,
to get out of paying child support and meeting other
responsibilities. The court may estop him from asserting this
claim, and not even allow the blood test. In other words, it
doesn’t matter if he really isn’t the father, when by his
conduct he has implied that he was. It would be unfair to the
mother and child to let him use the technicality of the blood
test, at this stage, to avoid his responsibilities.
- Mr. Smith deeds property that he doesn’t legally own to
Mr. Jones. Mr. Smith then acquires the properly legally. He
claims that it is his, and not Mr. Jones’, since at the time
he deeded it to Mr. Jones, he really had no right to do so.
The court may estop Mr. Smith from asserting this claim. In
other words, it doesn’t matter if it was true that he really
had no right to deed the property to Mr. Jones in the first
place, when by his conduct he implied that he did. It would be
unfair to Mr. Jones to let Mr. Smith use that technicality, at
this stage, to cheat Mr. Jones.
- A man has premiums taken out of his pay each month for
$50,000.00 worth of group life insurance. When he dies, the
company discovers that, under the contract, he was really
entitled to only $30,000.00 worth of group life insurance. The
company admits its error, apologizes, and offers the widow
$30,000.00, plus a refund of the excess premiums with
interest. The court, in this actual famous case, did estop the
company from using the contract technicality against the
widow, who was expecting a higher benefit, and possibly basing
her financial planning on that expectation. In other words, it
didn’t matter what the contract literally said, since the
Company’s own actions made it unfair to enforce the terms.
In my particular case, the Company, through its employee
benefits counselors and its taking of the extra premium, led my
wife and her survivors to reasonably believe that they had
$440,000.00 worth of group life insurance; and we actually used
this fact in our financial planning.
It must be noted, again, that my wife could easily have gone
in to the Company, in her wheelchair, to work at her desk, for
one day, during the early part of the year 2001.
Reasonable Contract Interpretation
This one is far less involved.
Even if the Company were not estopped from asserting the
contract literally, we could still have won under a reasonable
modern-day interpretation of the contract.
Decades ago, someone had to actually be at the office to be
“at work”. But not today. People work from home. They are given
computers by their companies, which are
connected into computers at the office, and are encouraged, if
not ordered, to work from home. This is what happened with my
wife. Therefore, under any reasonable interpretation, my wife
could be said to have “been actively at work” during the year
2001.
There is something comical about a company lending its own
computer to an employee, telling the employee to take it home
and hook it in to computers at work, telling the employee to
work from home; and then claiming that the employee is not
“actively at
work” when the employee is working from home on the computer
connected to work computers at the company’s own request. I
would take my chances with a Jury.
What Happened
So what happened when my case went to court?
Answer: It didn’t.
I could not find a lawyer to take the case! And while I am a
lawyer myself, I am a solo practice country lawyer, scarcely
able to take on a large big-city law firm with virtually
unlimited resources.
But why could I not find a lawyer, if I had a good case, as
stated above?
The answer is that I did have a good case under State common
law, but there is no longer any State common law for this type
of claim! The law has been pre-empted by ERISA, a Federal law;
and the Federal courts, despite their reputation from the civil
rights days, have no inclination to protect ordinary people
against big corporations.
How and why this happened will now be discussed. So that you
will be aware, there are two themes to the following discussion:
- The positive theme: How to protect yourself against having
this outrage happen to you. I cannot make guarantees, but I
can give you concrete suggestions. Forewarned is forearmed.
- The negative theme: How to maintain your political and
economic sanity by understanding that politicians will not
protect you against big corporations. This is true for
Liberals, Conservatives, and anything else. Those distinctions
are an obsolete myth; you have to protect yourself.
ERISA
Protection of Pensions
In the early 1970’s, Congress was determined to do something
about protecting employee pension funds. A scandalous situation
had developed, in which employees thought they were contributing
to pensions for their retirement enjoyment, only to discover
that most or all of it was gone when it came time to cash in.
The result was the Employee Retirement Income and Security
Act of 1974, fondly known as ERISA, codified at 29 USC 1001.
ERISA is thus a Federal law, and would normally be enforced in
the Federal courts. It would be possible to enforce it in State
courts, but a defendant could always remove it to Federal court.
Pre-emption of State Law
ERISA specifically pre-empts State law. That means that State
common law principles of contract interpretation and fraud and
misrepresentation will not normally be followed
in court cases. ERISA also denies punitive damages in most
cases, thus giving large corporations a dis-incentive to settle.
By way of explanation: without the threat of punitive damages
or attorney’s fees, corporations prefer to hold on to the money
for years, while their big-firm lawyers employ a battery of
stalling tactics. The extra interest they receive more than
makes up for an award that they might occasionally have to pay.
Further, without attorney’s fees, lawyers collect less if they
win, which makes it harder to get a lawyer to take the case. In certain discrimination and other cases, winning
plaintiffs get punitive damages, which means that the government
is serious about enforcing those laws: but not in ERISA.
In State law, if two people disagree, one can file suit. The
plaintiff sues the defendant. The court hears the full case from
the beginning. If one side disagrees with the decision, it can
be appealed; although appeals are costly, time-consuming, and
seldom successful. However, the plaintiff does get his or her
day in court.
ERISA, however, handles matters differently. It works closer
to what is often called Administrative Law. That is, the pension
plan has an Administrator, and the Administrator is given wide
latitude to interpret the contract in light of the facts as he
sees them. In the event of a dispute, the courts do not normally
hear the full case, but rather review the Administrator’s
decision to see if it was totally arbitrary, unreasonable,
capricious, or illegal. If not, then the courts almost always
uphold the Administrator’s decision.
In other words, the courts show deference to the
Administrator, rather than hearing both sides equally from
scratch.
There are various reasons why administrative review is less
thorough than a full case hearing. The standard reason is that
deference is due to governmental and other administrative
bodies, so that they can do their jobs effectively. The real
reason is to ease the workload on the courts.
This sort of thing is done when dealing with State
administrative agencies, such as review of zoning decisions.
Most people would be quite surprised to hear that it is used in
pension disputes.
Still, for pension plans, ERISA at least gave employees more
than they had had before.
Group Insurance Tacked On
Through a strange quirk, ERISA came to include not simply
“pension plans”, but rather “benefit plans” of most large
private corporations. This includes the ordinary group life and
health insurance that employees of large corporations had come
to take for granted.
The problem is that people who feel cheated out of life or
health insurance benefits assume that they will get their day in
court. After all, they have normally paid premiums for their
insurance, and a contract is created. If the contract is
breached, they want their day in court.
Not so under ERISA. Administrative review is not a full case
review. And in actual practice, as in my own case, no lawyer
would pursue the matter, as they realized that the courts would
uphold the administrator. The common law challenges listed above
(estoppel and contract interpretation) would not be heard by a
Jury.
Exactly how this came about is a mystery. ERISA started out
as pension reform, not as a group insurance scam. Some extremely
bright, unheralded business lobbyist saw an opportunity; and
Congress, never one to let the needs of ordinary lobby-less
people get in the way, let it pass.
Hence, I could not even get my day in court. Not a single
lawyer thought it was worth it.
Arrogance
ERISA gives corporations an arrogance that is hard for the
ordinary person to imagine.
I was first notified that my expected life insurance benefits
were denied in a crude letter from a plan administrator. I
demanded to speak to a company lawyer, and simply got another
letter back from the administrator. I wrote to the company’s Law
Department, and got yet another administrative letter.
Only if you sue will the company get a lawyer. But it will be
an outside law firm, able to throw dozens of lawyers with
unlimited resources at you, using funds that only bureaucratic
quasi-monopolistic corporations can muster.
After a dozen lawyers turned me down, I conceded defeat.
WHAT IS BEING DONE
The last lawyer who turned me down was the most sympathetic.
She said that ERISA is extremely pro-business, and that is that.
I asked her why no one is doing anything about the situation,
and she said they are. I asked who, and she replied with the
name of some group of employment lawyers. I asked what they had
accomplished, and she was silent.
I asked what consumer groups were doing, such as Ralph Nader.
I am still waiting for an answer.
In fact, nothing is being done. As of this update (December,
2007), not a single politician, Republican, Democrat, or Ralph Nader and Common Cause, will even respond. The media will not
respond. The reasons, I believe, are:
- Politicians are not anxious to advertise that they helped
to write this law.
- Politicians are not anxious to let you know that they all
get heavy corporate money, and thus do not dare to publicize
the law, let alone try to change it.
- The media believes that the general public cannot
understand the issues, so it is afraid to run the story, lest
it lose readers (to say nothing of advertisers).
Just to tie up loose ends: it might have been possible to
win, if a number of improbable events had occurred:
- I could catch the Company in a clear-cut lie to my late
wife. Of course, that would not happen. Nothing is ever put in
writing, and trusting people believe that their supposed
benefactors have their best interests in mind.
- I could prove that my late wife had definitely worked from
home, and that that work was fully encouraged and accepted.
That was unlikely, since management would deny it; and her
friends, the workers, in a bad economy, would be unlikely to
testify and jeopardize their jobs. I wouldn’t have the nerve
to ask them. Further, after her death, the Company asked me to
give back the computer, which I of course did; and there went
the evidence of her work. All of this was known to all the
lawyers who looked at the file, and all still declined to take
the case.
- I had a Judge endowed with an old-fashioned sense of
justice. Apparently none of the lawyers thought that was worth
the chance, even at 1/3 contingency. Funny: in the Civil
Rights era, Southern judges struck down unjust State
segregation laws; but today, Northern judges will not strike
down unjust worker-unfriendly laws.
WHAT SHOULD YOU DO
Preventive Care
Most people understand the need to see a physician even when
they aren’t sick. Regular checkups can detect problems before it
is too late. Similarly, most people get regular dental checkups.
People even know to bring in their cars for tune-ups and oil
changes, as a preventive measure to forestall bigger and
costlier problems.
Why the idea of prevention never took off for legal work is a
mystery. It is surprising how many people, including educated
ones, do not even have wills.
Preventive care is a good idea when you reasonably suspect
that there might be a problem. For medicine, there might always
be heart blockages, cancerous conditions, or tooth decay, which
if caught early will save you time, money, and aggravation. For
automobiles, regular oil changes and tune-ups can save you
hundreds or thousands of dollars in repair (or new car) costs.
Similarly, when your life situation changes, and big dollars
are at stake, and corporate interests are in control, there is
at least a reasonable suspicion that there could, maybe, be a
problem. And if you did not have such a suspicion, as I didn’t –
well, now you should.
ERISA Lawyers
Suppose that, as my late wife was dying, and I knew that she
had group life insurance of which I was the beneficiary, health
insurance which might be continued for me, salary continuance
coverage, long-term disability coverage, and the possibility of
social security disability --suppose that I had said to myself:
“This is a major life change. Big dollars are at stake. These
dollars are controlled by big corporations.”
Suppose I had thought of that. There is at least a chance
that I would have sought out a lawyer knowledgeable in employee
benefits and ERISA.
That lawyer would have been told the complete factual
situation. That lawyer also would have had to review a multitude
of documents. There would have been a charge for these services.
And that lawyer would, hopefully, have spotted the clause about
working for at least one day in the calendar year 2001.
Even if the whole thing had cost me a few grand or so, I
would have saved 171,000 tax-free dollars.
And if the lawyer had found nothing, and there were no hidden
traps: well, think of it as (a good) insurance policy. The peace
of mind of not having to trust in large corporations to protect
your financial interests is worth some money to me.
As they say, we report, you decide. But at least now you’re
aware that there may be a problem.
THE EXAMPLE OF SEN. EDITH PRAGUE
A good example of political inaction is provided by Senator
Edith Prague. This kindly lady, a Connecticut State Senator, is
known as a tireless advocate for the elderly, and is generally
respected on both sides of the aisle.
It occurred to me that this friend of the working classes
might be an ally. If Washington won’t help directly, then what
about having State politicians contact Washington, and publicize
the issue with constituents? That might help to raise a
groundswell, get a Connecticut U.S. Senator or Representative to
raise the issue, and possibly get the U.S. Congress moving.
I sent the ERISA article to Senator Prague. She immediately
thanked me for sending it, said that she agreed with me that it
was a bad situation, and wished me well.
I asked her if she would do two things:
- Use her position to publicize the issue in the media,
which had thus far refused to write about it.
- Use her position to write her views to our Connecticut
U.S. Senators and Representatives, and ask for their action in
changing the law.
Now the fun began. Senator Prague told me that it was a
federal matter, and she was just a Connecticut state legislator.
I told her that I knew that, but asked if she would use her
position to try to influence federal legislation, now that she
was aware of the problem; or at least bring the matter to the
attention of constituents, now that she was aware of the
problem.
Sen. Prague responded that I should visit her at her office,
and she would talk to me. I told her that I was busy, and in any
event was not the type of person to be schmoozed. I wrote and
asked her again if she would publicize the matter for the
benefit of constituents, and write to Washington legislators.
She called me and asked me what I wanted. I told her that I
had already said that, numerous times. She again invited me to
schmooze at her office. I asked if she would put it in writing
that she agreed that ERISA needed to be changed, but that she
refused to ask the media to publicize it or to write to
Washington. She said again that it was a federal matter, and she
was a state legislator. I said I knew that, but.... and we went
around and around again.
The result: Senator Edith Prague, the Connecticut Democratic
Crusader, thinks that ERISA is a bad situation, but will neither
publicize the matter for constituents nor ask Washington
politicians to consider a bill to change it. Obviously, Senator
Prague, a good lady, does not want to advertise the role of the
Democrat Party in taking corporate money and thus keeping ERISA
going.
There was an amusing twist at the end of 2007.
A Connecticut State Representative of Armenian descent was trying to pressure
the Federal Government into acknowledging the alleged genocide of Armenians by
the Turks before World War I. He was also using his influence to get the
newspapers to publicize the story, and he succeeded in getting it published.
I wrote to Sen. Prague and asked her why she could not similarly use her
influence to publicize the ERISA scandal. She responded that, in 2005, she
had written an email to local ERISA lawyer, but nothing further was done.
It is quite incredible that we can quarrel over
battles that happened nearly a century ago when the alleged miscreants are no
longer alive to defend themselves; but, we can do nothing to protect workers
today whose common-law rights have been taken away by lobbyists, with the help
of the Democrat and Republican parties.
THE EXAMPLE OF U.S. REP. JOSEPH COURTNEY
Atty. Joe Courtney is a prominent Tolland County lawyer with
political ambitions. He ran for Lt. Gov. of Connecticut, but lost in a Rell
landslide. He ran for Congress and won in November, 2006, largely on the
anti-Republican fervor of the time.
I wrote my ERISA concerns to Joe, three times. In mid-April, 2008, I received a
phone call from someone named Amy in his office. After exchanging pleasantries
and preliminaries, the conversation went something like this:
Amy: I’m calling to respond to your letter to Joe about ERISA.
Atty. Agranoff: That’s fine, but why are you calling? Why are you not
responding in writing?
Amy: Well, I thought it would be easier to call. I wanted to get some of
your questions clarified.
Atty Agranoff: What items in my letter were unclear?
Amy: Oh, it’s not that. I just wanted to explain what Joe is doing.
Atty Agranoff: Yes, but why not do that in writing?
Amy: I thought it would be easier to call.
Atty Agranoff: It may be easier, but it won’t be helpful. If you explain
on the phone what Joe is doing, then I will probably draw certain inferences as
to what will happen. If that doesn’t happen, and I write later, I’ll probably
hear one of: I don’t know about that; Amy doesn’t work here any more; tell me
again what you want….
Amy: I just want to explain.
Atty Agranoff: If it were a simple objective matter, such as I had written
that my social security check was missing, and you called and said it was now on
the way, I would say fine and thank you. However, this is a subjective and
argumentative matter. It’s not a question of what Joe says he’s doing, but of
what will be done to address ERISA concerns. If you respond in writing, there
will be no misunderstandings.
Amy: Well – OK – I can send my verbal comments to you in a letter.
Atty Agranoff: Thank you very much.
The letter duly arrived. It contained sympathy for the death of my wife, an
acknowledgement that ERISA can inhibit pro-consumer laws, and a lengthy
discussion of what Rep. Courtney was allegedly doing for the American worker. It
contained not one word about restoring the common-law right of American citizens
to sue for breach of contract in health insurance matters.
Like State Sen. Edith Prague, U.S. Rep. Joseph Courtney wanted to schmooze me by
saying whatever he thought I wanted to hear. It never occurred to him that I
didn’t want my ego stroked; rather, I wanted the problem solved.
Clearly, corporate interests dominate the federal government and the major
political parties. The kindest thing one can say is that the Republicans are
open about this, while the Democrats are more circumspect. If Theodore
Roosevelt, the old “trust buster”, came back and surveyed the landscape, he
would probably be surprised at how the Business Roundtable has obliterated his
work.
THE BOTTOM LINE
As is common knowledge, after all is said and done, employee
pensions are not protected, even with ERISA.
The Pension Benefit Guaranty Corporation, established as part
of ERISA, is a failure. Employees can still lose their pensions
through bankruptcy of the corporation, while executives get
millions in golden parachutes.
Employees can be cheated with impunity. Just ask any Enron
victims.
And Washington claims: lack of funds.
What happened is that ERISA created a monstrous bureaucracy
that helped workers virtually not at all, while taking away
their centuries-old common law right to sue for breach of
contract.
Anyone who trusts the Federal Government to protect
individual rights must know something that I don't know. With the sole exception of civil
rights, the Federal Government is the ally of Big Corporations,
Big Bureaucracy, and Big Gambling. And anyone who thinks that
the Democrats are any better than the Republicans can speak to
Senator Prague (or to Mrs. Clinton).
The bottom line: This country was founded by
individualists, and individualists have to take action to
protect themselves. Others will not do it for you; no matter
what they say to get your vote on Election Day.
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