Pension “de-risking” sounds like a fancy term for protecting participants’ interests in their benefits. In other words, take the risk out of pension benefits. Well, not quite. Not even close. Pension de-risking is a scheme to benefit the employers who sponsor pension plans. It refers to ways in which the employer can reduce its own risk that it may not have enough assets to pay the benefits that have been promised or just reduce the expense associated with such promises. While pension de-risking is not new to the pension world, the amount of de-risking and the type of de-risking in recent years should be concerning.

There are a few ways that pension plans can reduce their risk. Older and more common methods are to amend the plan to freeze benefits, terminate the plan altogether or make a lump sum offer to eligible participants. Another de-risking strategy that has become very popular in recent years is for an employer to purchase annuities from an insurance company which then provides the monthly payments to the pensioners. This is more commonly referred to as a “buy-out.” One need only do a simple google search of the term “pension de-risking” to find a plethora of insurance companies chomping at the bit to buy-out pension liabilities.

That begs the question, “why?” Why do insurance companies want to take on these liabilities and why do employers find them attractive? Employers find annuity buy-outs attractive for a few reasons.

If you are a union employee, you probably have a pension plan that has promised to pay a monthly annuity for your life once you reach retirement age. What happens if the plan cannot pay your benefit when the time comes? Well, there’s insurance for that. Pension plan sponsors are required to pay premiums for insurance through a government run program called the Pension Benefit Guaranty Corporation (PBGC). Simply stated, this insurance kicks in if the employer cannot fulfill the promises made to the employees. When that happens, the PBGC pays the pension benefits, up to certain limits. However, the PBGC predicts that its multi-employer program, the program that covers most union-sponsored pension plans, will become insolvent before the end of 2026 and almost certainly by 2027.

To determine its potential obligations, the PBGC looks at the funding status of all multi-employer plans. Each year, pension plan are required to report their funding status to the Department of Labor if the funding levels fall below certain thresholds. For 2020, the Department of Labor website shows there were 55 plans reported to be in engaged status (less than 80% funded), 112 plans reported to be in critical status (less than 65% funded), and 61 plans reported to be in critical and declining status (reported as going insolvent within 20 years). Many of these plans are multi-employer plans and some are very large plans. Continued failure of these multi-employer pension plans is putting an enormous strain on the PBGC’s resources. In 2020, the multi-employer portion of the PBGC had a deficit of -$63.7B. Despite being able to turn around its deficit for the single employer program, the multi-employer program has had a deficit fluctuating between -$42.4B to -$65.2B since 2014.

The PBGC was designed to be self-supporting by requiring pension plans to pay premiums for the plan participants and by taking over the assets of failed pension plans. It does not receive any funding assistance from the Federal government which means that if the PBGC fails there is no other government funding for these failed pension plans and no current mechanism to support the PBGC.

If a claim for ERISA disability benefits is denied or terminated, the claimant’s next recourse is to submit an administrative appeal to the insurance company. An ERISA long-term disability claim cannot be taken to court until the administrative appeals process is first exhausted. If the appeal is denied and the case proceeds to litigation, ERISA constrains the scope of evidence that is heard at trial and also limits the available remedies. (For this reason, ERISA is favorable to the insurance companies since it does not contain strong disincentives for denying meritorious claims).

It is important to understand that, with rare exceptions, the evidence submitted on appeal is the only evidence that will be considered in litigation—in other words, once the insurance company makes a final decision on an appeal, the file for litigation becomes closed. New supporting evidence does not get added during litigation and no witnesses are called to the stand to testify. The judge makes a determination based on the legal briefs submitted by the attorneys on both sides and a hearing at which the attorneys present arguments and answer any questions the judge may have. This makes ERISA litigation is a very particular type of litigation  governed by certain rules and limitations which make the process quite different from many other types of litigation such as personal injury.

For this reason, thoughtful preparation and submission of all relevant evidence for the administrative appeal is absolutely imperative. Appealing the denial of a disability claim is not just a matter of refuting the insurance companies’ reasoning for the decision or pointing out overlooked facts. Rather, it is the one opportunity to assemble the strongest possible body of evidence that can be presented in court if the appeal is denied.

When you start a new job that provides disability insurance, or accidental death and dismemberment insurance, most policies include language that states you will not have coverage for claims you make in the first 12 months if the claim is for an injury or illness that is a “pre-existing condition.” But what is a pre-existing condition, and how will insurance companies determine if you have one?

A pre-existing condition is generally defined as any medical condition for which you received treatment, care, advice, or a prescription from a medical professional in the 90 days before you started your new job. The precise language will differ from policy to policy, but that is the general idea. For some medical conditions, the application will be obvious. If you were in treatment for breast cancer in the three months before you started your new job, started a new job believing you were in remission, and then 8 months later found out that your cancer had returned, that would be a pre-existing condition and you would not have coverage. If you were in a car accident before you started a new job and treated with a chiropractor or in physical therapy for injuries, and eventually could not work because of those injuries and so went on leave within the first year of work, that would be a pre-existing condition. It’s also reasonably clear that if you treated with a doctor for a broken leg, or with a psychiatrist for anxiety before starting your new job and six months later you were hit by a car and went out on disability for internal injuries, your prior medical care would not be a pre-existing condition that would bar coverage for the accident.

There are other situations that are not so clear cut. If you were treating for back problems due to a slipped disc prior to starting work, and then were in a car accident six months into your new job and further injured your back, will coverage for that injury be barred by the pre-existing condition limitation? Your insurance company will almost surely argue that there is no coverage because the injury was a pre-existing condition. What if you had diabetes, and after a car accident lost a leg, in part because of complications related to your diabetes? Or what if you had been fully released to work after a prior injury and were not treating for it, but were titrating down on your pain medication during the 90-day period before you started work, and then your injury flared and you needed to go on disability?

Chronic pain can be related to a variety of conductions including joint issues, nerve damage, fibromyalgia, Multiple Sclerosis (MS), spinal problems, post-surgical complications, and cancer. While certain diagnoses can be more clearly associated with a disabling level of pain, pain is usually a subjective symptom. For example, a person with degenerative disc disease will be able to show evidence of their diagnosis through an MRI or X-ray; however, this kind of imaging cannot necessarily measure what level of pain a particular individual is experiencing.  In some cases, people may experience a more severe level of pain than others with the same diagnosis. Pain may also not be clearly associated with a particular condition or diagnosis. Pain can be due to tangled combination of factors that may not be very well understood.

Consequently, although many disability insurance policies seek “objective” proof of disability, in some cases objective medical evidence simply is not available due to the nature of the condition. Even without the type of documentation that is typically considered objective medical evidence of disability (like lab tests and imaging scans), a person with chronic pain may very well still qualify for disability insurance benefits.

In fact, in a recent Kantor and Kantor victory in the case of Hamid v. Metropolitan Life Insurance Company in the Northern District of California, the court reaffirmed that objective evidence is not required to prove disability. The court cited to prior case precedents to explain that, for medical conditions that are difficult to quantify through labs or imaging scans, benefits cannot be denied simply because quantifiable documentation is not available.

Almost one year since the beginning of the COVID-19 pandemic and it is clear that the effects of COVID-19 go beyond the numbers of cases and deaths.

How many people are struggling under the stresses of the pandemic? Is mental health suffering as Americans try to manage isolation, worries about jobs, and a constant stream of anxiety-producing headlines? Are they putting their future health at risk by delaying trips to the doctor or avoiding the emergency room when needed?

The Household Pulse Survey is an experimental survey designed to help answer these questions by capturing data in new ways. This survey is a cooperative effort between the Centers for Disease Control and Prevention, the U.S. Census Bureau, and several other government agencies to provide critical, up-to date information about the impact of the COVID-19 pandemic on the U.S. population. The Household Pulse Survey is different from other surveys conducted by the Census Bureau since it was designed to be a short-turnaround instrument that provides valuable data to aid in the pandemic recovery.

Unum is one of the biggest disability and life insurers in the United States, owning subsidiaries including Provident Life and Accident Insurance Company and The Paul Revere Life Insurance Company. Unum generates billions of dollars in revenue and has boasted high rates of growth over the past few decades. Unum has also built a bad reputation for unfair handling of disability benefits claims over the years. Their aggressive and unfair tactics to avoid paying benefits to insured individuals resulted in numerous lawsuits and class actions for insurance bad faith practices, with trial losses totaling well over $100 million.

On top of individual lawsuits and class actions, in the early 2000’s, insurance regulators undertook a multistate market conduct examination to investigate reports of wrongful practices related to delaying and denying legitimate disability insurance claims.  As a result, Unum entered into a multi-state settlement agreement in 2004 in which Unum agreed to review denied claims, implement new claims handling procedures, and pay a $15 million civil penalty. On top of the multi-state settlement agreement, California regulators undertook their own investigation and Unum’s California settlement agreement entailed an additional $8 million penalty as well as changes to policy provisions and claims handling procedures.

Some of the most striking problems with Unum’s handling of disability claims that insurance regulators identified included the following:

Most insurance companies unveiled national advertising campaigns in March 2020, promising to “pause” all policy cancellations or expirations for at least a month due to non-payment of premiums. Many continued this policy, stating that insureds simply had to ask to have their insurance payment plan extended during COVID-19.

Insurance companies did not do this out of the goodness of their hearts. In most states, the state insurance commissioner issued directives asking or requiring insurance companies to do exactly this. The federal government similarly issued regulations for policies governed by ERISA, extending the deadlines for appeals until after the pandemic ends.

Despite the state and federal mandates, and their own advertising, insurers have not all followed these requirements.  Many insurance companies did in fact still cancel or allow policies to lapse in the first month of the pandemic.  Many more put the onus on their insureds to reach out and request help, despite promises that all such extensions would be “automatic.”  Here is a summary of the positions taken by some of the major insurance companies:

First, a quick definition: A claim reserve is a reserve of money set aside by an insurance company in order to pay policyholders’ claims under their policies. Reserves are set by the insurance company in an amount that it anticipates having to pay out for the claim. Reserve information is important because it can show that the carrier undervalued the claim and never had the intent to pay the reasonable and necessary cost to repair the loss.

Despite being required by law to do so, homeowners’ insurers often improperly redact reserve information when producing claim file materials in litigation. Insurers also often to attempt to thwart an insured’s access to reserve information by objecting to deposition topics related to reserves. It is only when pressed that some carriers, whose counsel is aware of their untenable position, will concede and produce unredacted reserve information.

The Eastern District of California recently ruled on several discovery issues in a bad faith action involving a water loss. In Banga v. Ameriprise Auto Home Ins. Agency, No. 2:18-cv-01072-MCE-AC, 2021 WL 634955 (E.D. Cal. Feb. 18, 2021), a homeowner brought a bad faith action against her insurer after a dispute over insurance coverage for water damage to her home. As a result of high windstorm, the roof of the insured’s house was damaged, causing leakage that further damaged the interior walls and the vaulted ceiling of the house.

Renaker Hasselman Scott and Kantor & Kantor. LLP represent a former employee of Helena du Pont Wright in litigation concerning a pension trust established in 1947 by Mary Chichester du Pont Clark. The trust provides pensions to employees of Mary Chichester du Pont Clark’s children and grandchildren, including A. Felix du Pont, Allaire Crozier du Pont, Alice du Pont Mills, Mary Mills Abel Smith, Katharine Gahagan, James Mills, Phyllis Wyeth, Christopher T. du Pont, and Michael du Pont. Positions that may be covered include household employees, secretaries, personal assistants, chauffeurs, stable hands, and grooms, among others.

The litigation seeks to ensure that the pension trust is operated in accordance with the Employee Retirement Security Act of 1974 (ERISA), the federal law that establishes standards for pension plans sponsored by private employers. In June 2019, the United States District Court for the District of Delaware ruled that the pension trust is governed by ERISA.

Generally, ERISA requires that a pension plan provide pensions to employees who work in employment covered by the pension plan for at least five years. ERISA also generally requires that a pension plan provide benefits to the surviving spouses of such employees.

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