And By: Samson R. Elsbernd
401(k) retirement savings plans and similar defined contribution plans generally shift retirement plan risks from employers to employees. However, a recent Supreme Court Case decided this past February, LaRue v. DeWolff, Boberg & Associates, could make 401(k) defined contribution plans riskier for employers.

Defined Benefit Plans v. Defined Contribution Plans
Employers generally offer employees one of two types of retirement plans: defined benefit plans or defined contribution plans. Defined benefit plans provide a set retirement income, which is usually related to the number of years worked and employee compensation. On the other hand, defined contribution plans, also called individual account plans, provide payment according to the individual employee’s retirement account, which depends upon the amounts contributed and the performance of that account. 401(k) retirement savings plans are popular defined contribution plans.

Previously, the Supreme Court, in Massachusetts Mutual Life Insurance Company v. Russell, ruled that an employee could not sue the fiduciary of her plan (her employer) under ERISA (Employee Retirement Income Security Act of 1974) for breach of fiduciary duty concerning a defined benefit retirement plan. However, the Supreme Court recently allowed an employee to sue his employer under ERISA for fiduciary breach concerning his defined contribution plan.

Employees Can Sue Their Employers Regarding Their 401(K) Plans

In LaRue v. DeWolff, Boberg & Associates, the United States Supreme Court clarified that ERISA authorizes individuals to sue and recover for fiduciary breaches that impair the value of the retirement plan assets in the employee’s individual account. LaRue, the employee, sued his employer regarding his 401(k) retirement plan. His plan provided procedures and requirements that enabled individual plan participants to direct the investment of their contributions. LaRue alleged that he directed his employer to make investment changes in his individual account that the employer did not make. Consequently, he claimed his individual retirement account suffered a loss of $150,000 in interest (the Court record did not state whether the loss of interest was a decline or an increase in the value of the assets in the plan). LaRue argued that his employer should cover the loss, and the Supreme Court said LaRue could sue for this fiduciary breach under ERISA. The Court allowed the lawsuit to continue because fiduciary employer misconduct could reduce the benefits available under the retirement plan in the defined contribution system, whereas administrator misconduct in a defined benefit plan will not affect the retirement benefits unless the misconduct causes a risk of default for the entire plan.

LaRue Might Not Be Able To Recover
LaRue might not be able to recover from his employer even though the Supreme Court allowed him to sue. The case will now go back to the trial court, where LaRue has to prove 1) the fiduciary (employer) had breached its obligations, and 2) the breach had a detrimental effect on LaRue’s plan. The Supreme Court merely said employees could sue their employers for fiduciary breaches related to their 401(k) plans. The Court did not consider whether LaRue correctly followed the procedures and regulations of his plan, whether LaRue must exhaust all other remedies provided for in his plan before suing for the fiduciary breach, or whether LaRue started his lawsuit and asserted his rights early enough to get relief from a court. Lessons From LaRue Employers choose defined contribution plans because of their advantages over defined benefit plans, including less regulation and fewer administrative costs. Additionally, defined contribution plans give employees more control over their retirement, especially in an increasingly mobile job market. Perhaps more important to employers, defined contribution plans shift several risks of defined benefit plans from employers to employees, including the dangers of employees outliving the accumulated assets (longevity risk) in the plan and accumulating insufficient assets (investment risk).

The landscape has now changed again and some risk has been shifted to employers who offer defined contribution plans. Now that employees can sue their employers for mismanaging their 401(k) retirement plan accounts, these retirement plans are riskier than defined benefit plans with respect to lawsuits for fiduciary breaches. For example, employers may be susceptible to lawsuits by disgruntled employees whose retirement plans did not grow as large as the employee had hoped. To better defend themselves against this risk, employers should make sure they understand their fiduciary obligations under ERISA and consider having a qualified investment advisor under contract to perform some or all of those obligations. In addition, documentation will be critical in the event of a lawsuit, so employers should keep notes and records of all activity and discussions regarding changes in their employees’ plans. Though these suggestions will not prevent an ERISA, they will help defend against such a claim if one is made.

Wilke, Fleury, Hoffelt, Gould & Birney, LLP Labor & Employment Newsletter, August 2008, Volume 11, Issue 3

2008 was a relatively active year in terms of important legislative changes for California employers.  The following is a synopsis of the more notable changes that were enacted or modified for 2009.

California Law
Text-Based Communication While Driving Prohibited
Effective January 1, 2009, text-based communication while driving is prohibited.  Employers should update existing policies.

Temporary Employees Must Be Paid Weekly
Labor Code section 201.3 requires that temporary employees be paid on a weekly, rather than on bi-weekly, basis.  With certain exclusions, Section 201.3 defines a “temporary services employer” as “an employing unit that contracts with clients or customers to supply workers to perform services for clients or customers” and who negotiates with its clients and customers on such matters as time and place where the services will be provided, type of work, working conditions, and quality and price of the services.  The “temporary services employer” also determines the assignments of workers, retains the authority to assign a worker to another client or customer when the worker is deemed unacceptable to the client or customer, assigns workers to perform services for clients or customers, sets the rate of pay for workers, pays workers from its own account, and retains the right to hire and fire the workers.

The following new rules apply to temporary service employers:

•    With certain exceptions, temporary workers must be paid weekly with the wages for the current week’s work due on the payday of the following week.

•    If a temporary employee is assigned to work “day to day” from a pool of workers, the employee’s wages must be paid at the end of each day.

•    Strike replacements must be paid at the end of each workday.

•    Unless otherwise stated, temporary services employees who are fired or quit must be paid pursuant to Labor Code §§ 201 and 202.

Overtime Exemption For Physicians Paid On An Hourly Basis
A licensed physician or surgeon who is primarily engaged in performing duties for which licensure is required is exempt from overtime if he/she is paid at least the minimum hourly rate set annually by the state.  Effective January 1, 2009, the minimum hourly rate is $69.13. This exemption does not apply to employees in medical internships or resident programs, physician employees covered by collective bargaining agreements or veterinarians.

Monthly or Annual Salaries for Exempt Computer Professionals
California Labor Code § 515.5 has been amended to allow an employer to pay a computer professional who is exempt from overtime a monthly or annual salary.  The salary required for the exemption is $79,050 annually or $6,587.50 monthly.

Earned Income Tax Credit
You must provide notification to all employees that they maybe eligible for the federal earned income tax credit (EITC) within one week before or after, or at the same time, you provide a Form W-2 or a Form 1099 to any employee.

Federal Law
Department Of Homeland Security: Supplemental Final “No-Match Letter” Rule
On October 23, 2008, the Department of Homeland Security (“DHS”) issued its supplemental final rule for employers who receive a “no-match” letter from the Social Security Administration or a Notice of Suspect Documents letter from the DHS.  The final rule will become effective upon the lifting of an injunction put in place during a legal challenge to the original 2007 version.  This will likely take place in early 2009.

The supplemental final rule requires employers to:

•    Verify within 30 days that the mismatch was not the result of a record-keeping error on the employer’s part.  If it is, then correct and communicate the corrected information to the SSA.

•    If the mismatch cannot be resolved as a record keeping error, then the employer must notify the employee within 5 business days and request that the employee confirm the accuracy of the employment records within 90 days of receiving the no-match letter.

•    At the end of the 90 day period, if the mismatch has not been resolved the employer will have 3 days to complete a new I-9 form with the employee.  The questionable Social Security Number may not be used when completing this new form.

The supplemental final rule provides a safe harbor to employers that follow its procedures.  If an employer does nothing to resolve the mismatch or does not act in good faith, then the employer may be liable for employing an unauthorized worker, leading to civil or criminal penalties.

Amendments To The ADA
The ADA Amendments Act of 2008 (“ADAAA”) goes into effect on January 1, 2009.  The effect of the ADAAA on California employers is minimal, as California employers were already required to comply with the Fair Employment and Housing Act which is even more favorable to employees than the ADAAA.  However, employers in should still be aware of the ADAAA and its potential effect on their out-of-state operations.

The ADAAA expands the definition of disability, in several ways, including:

•    Requiring the courts to determine whether an impairment substantially limits a major life activity without taking into account mitigating measures such as hearing aids, prosthetics or insulin.

•    Expanding the definition of “major life activities” to include caring for oneself, performing manual tasks, seeing, hearing, eating, sleeping, walking, standing lifting, bending, speaking, breathing, learning, reading concentrating, thinking, communicating, working and the operation of a major bodily function, such as the immune system, normal cell growth and digestive, bowel, bladder, neurological, brain, respiratory, circulatory, endocrine and reproductive functions.

•    Removing the “substantially limits” requirement, meaning that individuals are not required to establish that their impairment limits or is perceived to limit a major life activity to be “regarded as being disabled.”  However, reasonable accommodations need not be provided to an individual who is only “regarded as” having an impairment.

•    Providing that an impairment that is episodic or in remission is a disability if it would substantially limit a major life activity when active.

Revised Form I-9 for Employers
The U.S. Citizenship and Immigration Services has revised the list of documents that will be acceptable for Form I-9, Employment Eligibility Verification.  The new rule does the following:

•    Requires that all documents presented during the verification process be unexpired;

•    Eliminates List A identity and employment authorization documentation Forms I-688, I-688A (Temporary Resident Card and outdated Employment Authorization Cards);

•    Adds foreign passports containing certain machine-readable immigrant visas to List A; and

•    Adds to List A valid passports for citizens of the Federated States of Micronesia (FSM) and the Republic of the Marshall Islands (RMI), along with Form I-94 or Form I-94A.

The revised Form I-9 is available at www.uscis.gov.  Paper copies of the Form I-9 can be ordered by calling 1-800-870-3676.  Employers are required to use the revised form for all new hires.

Family and Medical Leave Act
The Department of Labor has made changes to the Family and Medical Leave Act that will take effect on January 16, 2009:

Military Family Leave
•    Employees who are family members of covered service members may take up to 26 work weeks of leave in a single 12-month period to care for a covered service member with a serious illness or injury incurred in the line of duty while on active duty.
•    Families of National Guard and Reserve personnel on active duty may take 12 weeks of FMLA job-protected leave to manage their affairs based on “any qualifying exigency,” including short notice deployment, military events and related activities, childcare and school activities, financial and legal arrangements, counseling, rest and recuperation, post deployment activities, and additional activities where the employer and employee agree to the leave.

Employee Eligibility
•    Twelve months of employment need not be consecutive for purpose of determining whether an employee has been employed by an employer for at least 12 months.  An employer need not count a break-in-service of seven years or more, with two exceptions:

1.    An employee’s fulfillment of his/her military obligations; and

2.    A period of approved absences or unpaid leave, such as for education or child-rearing purposes, where a written agreement or collective bargaining agreement exists concerning the employer’s intent to rehire the employee.

•    Time spent fulfilling an employee’s military service obligations now count toward the employee’s 1,250 hour and 12-month requirements for compliance with the Uniformed Services Employment and Reemployment Rights Act.

•    An employee who is not eligible for FMLA protection at the beginning of his/her leave may begin FMLA once he/she has met the eligibility requirements.

Light Duty

•    Light duty does not count against an employee’s FMLA entitlement.  The employee’s right to restoration is suspended during the period of time the employee performs light duty or until the end of the applicable 12-month FMLA leave year.

Waiver of Rights

•    An employee may voluntarily settle or release FMLA claims without approval from a court or the DOL.

Serious Health Condition

•    An employee who is incapacitated for more than three consecutive full calendar days must show that he/she is receiving continuing treatment from a health care provider in order to satisfy the definition of “serious health condition.”  The employee must visit a health care provider two times within 30 days of the first day of incapacity unless extenuating circumstances exist.  The employee must also see a health care provider within seven days of the first day of incapacity and, for a chronic serious health condition, must visit a health care provider at least twice a year.

Perfect Attendance Award

•    An employer may deny “perfect attendance” awards to an employee who does not have a perfect attendance because of FMLA leave as long as the employer treats an employee taking a non-FMLA leave in the same manner.

Employer Notice Requirements
•    An employer is required to provide employees with a general notice about the FMLA, a notice of eligibility and of rights and responsibilities, and a designation notice.

Employee Notice

•    An employee must follow an employer’s normal and customary call-in procedures for FMLA notification, absent unusual circumstances.

Substitution of Paid Leave
•    An employee electing to use any type of paid leave concurrently with FMLA leave must follow the same terms and conditions of the employer’s policy that apply to other employees for the use of such leave.

Computing FMLA Leave During a Holiday Week

•    Whether an employee is charged FMLA leave for a holiday depends on whether the employee needs to take FMLA leave for a full or partial work week.  An employee taking a full week of FMLA leave during a week containing a holiday will have the holiday counted against his/her FMLA allotment.  An employee taking less than a full week of FMLA leave during a week containing a holiday will not have the holiday counted against his/her FMLA allotment unless the employee was otherwise scheduled and expected to work the holiday.

Medical Certification
•    The Health Insurance Portability and Accountability Act applies to communications between an employer and an employee’s health care provider.  The employer’s representative may contact the health care provider, but that representative must be a health care provider, a human resources professional, a leave administrator, or a management official and cannot be the employee’s direct supervisor.  Further, an employer may not ask the health care provider for information beyond what is required by the certification form.

•    An employer may request a medical certification for each leave year for medical conditions that last longer than one year.

The new regulations and the DOL’s commentary are available at http://www.dol.gov/esa/whd/fmla/finalrule.htm.

New W-4 Form (Employee’s Withholding Allowance Certificate)
The Internal Revenue Service has provided a new 2009 Federal W-4 Form.  An employer is required to use the new W-4 Form for all employees.  An employee who previously provided a W-4 Form claiming exemption from federal income tax withholding must file a new 2009 W-4 Form by February 16, 2009 in order to continue the exemption.  If the employee does not give an employer a new W-4 Form, an employer should withhold as if the employee is single, with zero withholding allowances.

Kevin C. Khasigian has joined the firm as an Associate. Mr. Khasigian will focus on administrative law, civil litigation, bankruptcy and estate planning for the firm.

In 2003, Kevin obtained his Bachelor of Arts degree from Brown University and then went on to complete his Juris Doctorate at the University of the Pacific, McGeorge School of Law in 2007 with great distinction. Mr. Khasigian has studied under U.S. Supreme Court Justice Anthony Kennedy in Salzburg, Austria. In addition, he has put forth great effort to aid the victims of the tragic events that followed Hurricane Katrina as a participant in “Project Katrina”, a program for law students who traveled to New Orleans to assist the Public Defender’s office.

Mr. Khasigian is a native of Elk Grove, CA, and a graduate of Jesuit High School in Carmichael. Wilke Fleury also welcomes Latika Sharma and Steven J. Williamson to the firm. Ms. Sharma, who was born in the Fiji Islands and raised in Stockton, CA, attended the University of California, Berkeley where she received a B.A. in Political Science. She received her Juris Doctorate in 2007 from the University of California, Davis School of Law and joined the firm in May of 2008.

Ms. Sharma’s practice focuses on health care and insurance regulatory matters, medical negligence, hospital liability and employment and labor litigation.

Mr. Williamson received his B.A. in Behavioral Science and Law from the University of Wisconsin-Madison, where he was also born. He received his Juris Doctorate from the University of the Pacific, McGeorge School of Law in 2005. Before joining the firm in 2008, he practiced general civil law in Stockton, CA.

Mr. Williamson’s current practice focuses on medical malpractice defense, hospital liability defense, and the defense of skilled nursing facilities.

Wilke Fleury has welcomed veteran litigator Donald A. Lounsbury to the firm where he will serve as Senior Trial Counsel. Mr. Lounsbury brings more than 30 years of legal experience to the law firm and will specialize in complex litigation defense of individual professionals, healthcare institutions and corporations.

Mr. Lounsbury received his undergraduate degree from California State University, Long Beach, where he was a member of the Blue Key National Honor Society. He then went on to obtain his Juris Doctorate from Western State University College of Law. Mr. Lounsbury has completed more than 200 civil and criminal jury trials, court trials, arbitrations and mediations. In addition, he was awarded the highest possible rating by Martindale-Hubbell based on extensive and confidential attorney peer review. Mr. Lounsbury joins the firm from Orange County’s Herzfeld & Rubin, LLP, where he served as Senior Trial Counsel and Managing Attorney.

A Sacramento jury deliberated less than three hours before returning a near-unanimous verdict in favor of Lodi Memorial Hospital in a medical negligence action. The two week trial in Sacramento County Superior Court pitted Joan Perry, the widow of Stanley Perry, against the hospital and its staff after her husband died suddenly of a ruptured aortic aneurysm during a routine treadmill test one day following admission for sudden onset of chest pain. Mrs. Perry claimed that the hospital and others mismanaged her husband’s care.

Retained by Optima Insurance, the insurance carrier for the hospital, Wilke Fleury partner, David A. Frenznick, successfully argued that the hospital had met and exceeded the standard of nursing care in all aspects of Mr. Perry’s care. Mr. Perry presented with classic signs of coronary artery disease and, prior to the treadmill test, his cardiologist was timely informed by the nursing staff of all pertinent changes in the patient’s condition.

Lodi Memorial Risk Manager, Daleen Murray, praised Wilke, Fleury attorneys after receiving the jury’s verdict. “Your devoted time, expertise and professionalism lead us to the desired outcome of a defense verdict,” she said. “We will most definitely call upon Wilke, Fleury and Mr. Frenznick for our future legal needs.”

After a nine week trial in the Federal District Court in Sacramento, a jury unanimously awarded our client, Pacific MDF Products, Inc., $6,670,185. Pacific MDF manufactures home improvement products, such as baseboards and crown moulding, out of fiberboard at its plant in Rocklin, California. The manufacturing process generates a significant amount of sawdust, which must be disposed of in environmentally sensitive ways. Pacific MDF decided to purchase from Defendants, Advanced Recycling, Inc., Bio-Mass Energy Concepts, LLC and Donald Kunkel, a system which would permit Pacific MDF to burn the sawdust to create both steam heat and electricity to run its plant.

When Defendants were unable to overcome both design and manufacturing defects in the cogeneration system, Thomas G. Redmon and Daniel L. Baxter of our office filed the lawsuit alleging 11 different causes of action, including breach of contract, breach of warranty, fraudulent and negligent misrepresentation, and making false promises. The jury deliberated for less than two days before finding in favor of our client on every cause of action.

Pacific MDF expressed praise for the quality of the representation it received based, not just on the end result, but on the fact that Mr. Redmon and Mr. Baxter exhausted every effort on its behalf to settle the matter in a cost effective manner prior to taking the matter to trial.

The International Journal of Occupational & Environmental Health recently published a letter to the editor authored by David A. Frenznick, who heads the firm’s construction law group.  The letter, entitled Courtroom Impact of the ACOEM Statement on Mold, comments on a long-standing medical-legal debate.

Mr. Frenznick represents owners, developers and contractors in residential and commercial construction disputes.

The firm is pleased to announce that Megan Lewis and Trevor Stapleton, both formerly associates, have been made partners in the firm.

Ms. Lewis joined Wilke Fleury in 2002 after graduating from the University of the Pacific, McGeorge School of Law. Her practice areas include representing businesses in all aspects of bankruptcy proceedings and assisting businesses with corporate formation and litigation. She currently serves as Treasurer for Women Lawyers of Sacramento; Vice Chair of the Bankruptcy and Commercial Law Section of the Sacramento County Bar Association; Board Member of California Women Lawyers; and is a member of the Junior League of Sacramento. "

Mr. Stapleton, who joined the firm in 2005, is a transactional attorney advising businesses, professionals and entrepreneurs in all aspects of strategic planning including taxation, formation, sales and mergers, business transactions, asset protection and general business law. His practice also includes estate planning, probate and trust law, tax controversies and audits, as well as advising non-profit organizations. He received his Juris Doctorate and certificate in Dispute Resolution from Willamette University College of Law and his LL.M.in Taxation from the University of Washington School of Law. He is admitted to practice in both Washington and California. He also serves on the Board of Directors and is the Treasurer of the Down Syndrome Information Alliance, a Sacramento non-profit organization providing resources and support for individuals with Down syndrome and their families.

Wilke Fleury Managing Partner, Michael Polis, said, "Megan and Trevor have been recognized for their outstanding service to our clients and to the community. We are delighted to welcome them as new partners and look forward to their long and successful affiliation with our firm."

Michael Polis has been named the firm’s managing partner. Mr. Polis, who has been with the firm since 1994, takes over the position from Jim Krtil. Mr. Polis received his law degree from the University of the Pacific, McGeorge School of Law and his undergraduate degree in economics from the University of California, Los Angeles.

Mr. Polis’ practice focuses on advising Knox-Keene health care service plans and health insurers with compliance-related issues. In addition, he advises insurance agencies and administrators with respect to compliance-related matters. He also advises dentists, physicians, chiropractors and optometrists with respect to corporate formation and tax-related matters. Mr. Polis has written numerous articles on health care, insurance and managed care compliance issues. He has also presented at the California Association of Dental Plans on Knox-Keene compliance-related issues.

Mr. Polis is a member and former chairman of the Health Care Law Section of the Sacramento County Bar Association. He is licensed in California as a Certified Public Accountant and is a member of the California Society of Certified Public Accountants. He is the Chairman of the Board of Fresh Producers, Inc. and former chair of Goodwill Industries of Sacramento Valley, Inc. In addition, he teaches cost accounting, business and corporate law at the University of California, Davis Extension Program.

Former legislator, Rick Keene, has joined the firm as Of Counsel. Keene served in the Assembly for three terms where he rose to assume several Republican leadership positions, including Republican Whip and Vice Chair of the Committee on Water, Parks and Wildlife. He also served as the lead Republican on the Assembly Budget Committee. Prior to being elected to the Assembly, Keene served as a councilman and mayor to the City of Chico, CA.

Keene, who obtained his B.A. from CSU Chico, received his Juris Doctorate degree from Cal Northern School of Law and practiced law in his Chico law firm for 15 years before his election to the Assembly. "Our firm is excited to continue to add colleagues with tremendous and varied backgrounds, such as Rick Keene,” said Michael G. Polis, Managing Partner. “Our clients and future clients will benefit from his local and state government experience, legal knowledge and counsel. "