Sample Subrogation and Reimbursement Clauses for Summary Plan Description Now Available
(Posted on May 25, 2018 by )


Lexis Practice AdvisorA new article by Carol V. Calhoun, published by Lexis Practice Advisor, provides sample subrogation and reimbursement clauses to be used in a summary plan description. Such clauses are typically used in an instance in which an employer’s health or disability plan wants to avoid a situation in which a participant gets a double recovery for the same illness or injury. For example, an employee covered by both the employer’s health plan and a spouse’s health plan should not have the same medical expenses paid by both plans. Or an individual who is hit by a car, and recovers lost wages from the driver’s insurance company, should not also be able to receive disability benefits for the same period.

You can see a copy of the piece at this link.

Subrogation and Reimbursement Clause (Summary Plan Description)
(Posted on May 25, 2018 by )


Drafting Notes= Drafting Notes

Alternate & Optional Clauses= Alternate & Optional Clauses

Subrogation and Reimbursement Rights
The Plan has a right to be reimbursed for the amount of any benefits it pays out to you if you receive, directly or indirectly, any money from a third party (such as a person responsible for an injury or an insurance company) on account of the same injury, illness or condition for which the Plan has paid benefits (any such money is referred to here as a “recovery”). Therefore, as a condition of receiving benefits from the plan for medical or other expenses, you agree that if you receive any recovery from a third party on account of an injury, illness, or condition for which the Plan has paid benefits, you will pay to the plan the amount of that recovery, up to the total amount of benefits paid to you by the plan. For example, if you are injured in an auto accident and either your insurance company or the other driver’s insurance company settles with you, you must reimburse the plan for the benefits the plan provided to you for your medical expenses resulting from that accident, but only up to the amount of your settlement.

If you decide not to pursue a claim relating to any injury, illness or condition for which the Plan has paid benefits, the Plan shall be subrogated to your right to pursue such claim. The Plan may assert a claim, in its discretion, to collect a recovery directly from any third party against whom you have any rights in any court of competent jurisdiction, or in any tribunal or other proceeding. You agree not to object to the jurisdiction of any such court or venue and otherwise cooperate in pursuing the recovery.

In connection with the Plan’s rights of subrogation and reimbursement, you are required to:

  • notify the Plan within thirty (30) days of the date when any notice is given to any party, including an attorney, of your intention to pursue or investigate a claim to recover damages or obtain compensation due to any injury, illness, or condition for which the Plan has paid benefits;
  • promptly notify the Plan of any recovery paid as a result of any injury, illness or condition for which the Plan has paid you benefits that you become aware of, by any person from any source;
  • fully cooperate with the Plan’s efforts to enforce its rights of subrogation and reimbursement;
  • complete all forms and provide all information requested by the Plan, including completing and submitting any applications or other forms or statements the Plan may reasonably request;
  • cooperate in all efforts to pursue the recovery, including in the preparation and execution of any case or otherwise, and by attendance or giving testimony at depositions and in court, or as otherwise may be necessary; and
  • do nothing to prejudice or impede the Plan’s rights of subrogation and reimbursement, including by making any settlement or recovery that attempts to reduce or exclude the full cost of the benefits provided by the Plan, except as reasonably agreed to by the Plan.

Please note the following regarding the Plan’s right of reimbursement:

  • The source and timing of the recovery do not matter. The Plan has the right to be reimbursed for whether that recovery is made to or on behalf of the covered person; made in a single payment or over a period of time; or collected by action at law, judgment, settlement, or otherwise.
  • The Plan will automatically have a lien against the recovery in the amount of any benefits the Plan provided as a result of the injury, illness, or condition for which the recovery is collected.
  • The plan may enforce the lien with any court or agency with jurisdiction over the matter against the covered person, an insurance company acting on behalf the covered person, o the third party or its agent, or with anyone who is in possession of the recovery.
  • The lien may be enforced by any claims administrator or other person acting as the Plan’s delegate or as a provider of administrative services to this Plan.
  • The Plan, or other person acting as the Plan’s delegate or provider of administrative services to this Plan, has the sole authority and discretion to decide whether to pursue any right of recovery in favor of the Plan.
  • The Plan’s recovery rights are a first priority claim against all responsible parties and are to be paid to the Plan before any other claim against the recovery.
  • The Plan’s lien on the recovery is not dependent upon whether or not:
    • the recovery is insufficient to make the covered person whole or otherwise compensate the covered person for the injury, illness, or condition;
    • the Plan participates in or assists in claims made to obtain the recovery;
    • the Plan bears any court costs or attorney fees in furtherance of claims seeking the recovery;
    • any liability for payment is admitted by anyone;
    • the recovery identifies the benefits provided by the Plan; or
    • the recovery identifies payment, in whole or in part, as for pain and suffering or for non-economic damages.

This excerpt from Lexis Practice Advisor®, a comprehensive practical guidance resource providing insight from leading practitioners, is reproduced with the permission of LexisNexis. Reproduction of this material, in any form, is specifically prohibited without written consent from LexisNexis.

Drafting Note to First Paragraph
This form addresses the circumstances which may result in a subrogation or reimbursement claim by the plan against a participant. ERISA requires that a summary plan description (SPD) provide a clear statement of any right to recovery (including by subrogation or reimbursement) that could affect the benefits that a participant (or beneficiary) might otherwise reasonably expect to receive from the plan. 29 C.F.R. § 2520.102-3(l).

Under ERISA, a plan fiduciary may seek reimbursement to the plan of specifically identifiable funds (i.e., the amount of a participant’s duplicative recovery from a third party) in the form of an “equitable lien by agreement” under ERISA § 502(a)(3) (29 U.S.C. § 1132(a)(3)). Sereboff v. Mid Atlantic Medical Services, 547 U.S. 356, 364 (2006). Further, in U.S. Airways v. McCutchen, 133 S. Ct. 1537 (2016), the Supreme Court held that equitable defenses (such as unjust enrichment) could not override an explicit subrogation right provided for in the plan documents. So plans that wish to establish subrogation and reimbursement rights should incorporate provisions into the plan document and SPD. Recently, the Supreme Court clarified that such an equitable lien right cannot be enforced if the participant spends the entire damages award on non-traceable items. Montanile v. Bd. of Trs. of the Nat’l Elevator Indus. Health Ben. Plan, 136 S. Ct. 651 (2016). Therefore, plans should act promptly to enforce these rights.

Any costs, expenses, or attorney’s fees that you pay in connection with obtaining any recovery will not reduce the amount you are required to reimburse the Plan as described in the preceding paragraph, unless the plan agrees to such reduction.
Drafting Note to Third Paragraph
This language is intended to establish a traditional subrogation right, whereby the plan obtains the right to “step into the shoes” of the participant to assert a claim directly against a third party.
Drafting Note to Fourth Paragraph
This language can be used, as stated or in modified form, to explicitly provide for specific terms of the subrogation and reimbursement rights that might otherwise be inferred.
Drafting Note to Fifth Paragraph
This paragraph anticipates and attempts to undermine several defenses upon which an equitable lien might be challenged.

Carol V. Calhoun quoted in “Will the Nick Sabin tax apply to Nick Sabin?”
(Posted on March 26, 2018 by )


Carol V. Calhoun was quoted in a March 12, 2018 article in Tax Notes, dealing with the issue of whether the new excise taxes on excess compensation and excess severance benefits will apply to public colleges and universities. The wording of the law makes it unclear whether the law should apply to the very governmental entities most likely to have employees that would otherwise be affected by it.

Read the article.

“Effect of the Tax Cuts and Jobs Act of 2017 on Nonprofits and Governments,” PowerPoint now available
(Posted on February 15, 2018 by )


The Tax Cuts and Jobs Act of 2017 made a number of changes affecting the compensation and benefits that governmental, church, and other tax-exempt organizations can provide to their employees. Given the short time between introduction and passage of the Act, it is not surprising that many of the new provisions are unclear in their application. Moreover, some of them may produce unintended consequences for these organizations.

As part of a symposium on “Recent Developments in Benefits/Executive Compensation Affecting Tax Exempt Organizations,” Carol V. Calhoun gave a presentation on the ways in which the Tax Cuts and Jobs Act of 2017 will affect the compensation and benefits of such organizations. A copy of the PowerPoint for her speech can be found at this link.
 
 
 
 
 
 
 
 

Recent Developments in Benefits/Executive Compensation Affecting Tax Exempt Organizations
(Posted on February 15, 2018 by )


The Tax Cuts and Jobs Act of 2017 made a number of changes affecting the compensation and benefits that governmental, church, and other tax-exempt organizations can provide to their employees. Given the short time between introduction and passage of the Act, it is not surprising that many of the new provisions are unclear in their application. Moreover, some of them may produce unintended consequences for these organizations.

The PowerPoint slides for the portion of the presentation dealing with the Tax Cuts and Jobs Act of 2017 are below.

Nonprofits and Governments Face Compensation and Benefits Issues under the New Tax Law
(Posted on January 11, 2018 by )


The recently passed tax bill imposes a 21% excise tax on excess compensation and excess severance benefits of certain executives of nonprofit and governmental employers. The provision has a substantial impact on the compensation and benefits that such organizations can provide for their executives. Moreover, the determination of which employers, and which executives, are covered includes several traps for the unwary.

Read more.

Navigating Pension and Annuity Payments: General Rule and Taxation Guidelines
(Posted on December 18, 2017 by )


Employers and those involved in administering retirement plans often do not understand the rules for navigating distributions from such plan. For example, how do the rules for when an employee can take a distribution interrelate with the rules for when an employee is subject to tax penalties on a distribution? Can an employee take a distribution of nontaxable amounts from a plan without also taking amounts subject to tax? How is a distribution initiated by the employer to solve a discrimination issue taxed? Who is taxed, and in what amount, if a distribution is made pursuant to a domestic relations order? What are the tax consequences if a loan is not repaid when due? What is the difference between a rollover of a distribution and a plan-to-plan transfer? For an employee who has a hardship, is it better to take a hardship distribution or a plan loan? Under what circumstances is withholding required, and in what amount? How are distributions reported to an employee? How does the employee report a distribution on his or her income tax return? This live webinar helps those responsible for retirement plans master both withholding and income tax aspects of a wide variety of distribution situations.

The PowerPoint presentation for the webinar is below.

IRS Issues Self-Assessment Forms for Federal, State, and Local Government Employers
(Posted on July 10, 2017 by )


Internal Revenue ServiceThe IRS has now issued a series of forms to enable federal, state, and local governments to assess their compliance with federal tax statutes, and has set forth some common errors found in examining such employers. Several of the forms relate to employee benefits issues, and may be of assistance to governments trying to ensure that they comply with all legal requirements.

The forms are as follows:

For use by Federal, State and Local Government Entities

For use by State and Local Government Entities Only

Read more.