5500 Preparer's Manual for 2012 Plan Years
The premier resource in the field of Form 5500 preparation, 5500 Preparer's Manual will help you handle the required annual Form 5500 filings for both pension benefits and welfare benefit plans.
The U.S. Supreme Court has unanimously upheld a decision by the U.S. Court of Appeals for the Fourth Circuit allowing a health plan administrator to obtain reimbursement under a subrogation clause from a participant who had recovered from a third party in a tort action. According to the Court, the health plan's claim for reimbursement was equitable in nature, and, as a result, the plan properly sought equitable relief under ERISA §502(a)(3). The High Court's opinion resolves a split among the Circuit Courts of Appeal.
Joel and Marlene Sereboff were participants in a preferred provider organization (PPO) plan offered by Mid Atlantic Medical Services (Mid Atlantic). The plan contained an "Acts of Third Parties" subrogation provision, which specified that Mid Atlantic had the right to recover any payments made to beneficiaries by third parties for costs associated with an injury resulting from the acts of another party. Under the plan, any recovery by Mid Atlantic from such payments was subject to a deduction for reasonable attorneys' fees and court costs incurred by the beneficiaries in securing the third-party payments.
In 2000, the Sereboffs were injured in an automobile accident, and the PPO plan paid their medical expenses in the amount of $74,869. Eventually, the Sereboffs settled their lawsuit against the other driver for $750,000. Upon receipt of the settlement funds, the Sereboffs refused to reimburse Mid Atlantic for the benefits it had paid on their behalf. Subsequently, Mid Atlantic filed suit against the Sereboffs in federal district court under ERISA §502(a)(3) , which authorizes a fiduciary to bring an action to obtain "appropriate equitable relief" to enforce the provisions of an employee benefit plan. The Sereboffs agreed to set aside from their settlement a sum equal to the amount Mid Atlantic claimed, and preserve this sum in an investment account pending the outcome of the suit. After the district court granted summary judgment to Mid Atlantic, the Sereboffs appealed and the Fourth Circuit affirmed the lower court, observing that the Courts of Appeals were divided on the question of whether ERISA §502(a)(3) authorizes recovery in these circumstances.
The issue before the Supreme Court was whether the relief Mid Atlantic requested from the district court was equitable under ERISA §502(a)(3). In finding that it was, the Court distinguished the facts in this case from those in its prior cases that had addressed this issue. The Court noted that in this case, Mid Atlantic sought "identifiable funds within the Sereboffs' possession and control"—that part of the tort settlement due Mid Atlantic under the ERISA plan and set aside in the Sereboffs' investment account. In a 1993 case, Mertens v. Hewitt Associates (508 U.S. 248), the High Court construed ERISA §502(a)(3) to authorize only "those categories of relief that were typically available in equity."
Then, in a 2002 case, Great-West Life & Annuity Insurance Co. v. Knudson (CCH Pension Plan Guide ¶23,976R), the Court faced a provision similar to the "Acts of Third Parties" subrogation provision in the Sereboff case. However, the Court distinguished the Great-West case from Sereboff because the funds were not in Knudson's possession and had been placed in a trust under California law and so were not equitable in nature. This impediment is not present in Sereboff, said the Court, because Mid Atlantic sought identifiable funds within the Sereboffs' possession.
Whether a remedy is legal or equitable in nature depends on the basis for the plaintiff's claim and on the nature of the underlying remedies sought. Therefore, in determining that the basis for the claims was equitable, the Court relied on its decision in a much-earlier case, Barnes v. Alexander. The Court wrote that the "Acts of Third Parties" provision in the Sereboffs' plan like Barnes' promise to two other attorneys to share a contingent fee he expected in a case specifically identified a particular fund distinct from the Sereboffs' general assets, and a particular share of that fund to which Mid Atlantic was entitled. Further, the Court rejected the Sereboffs' contention that the lower courts erred in allowing enforcement of the "Acts of Third Parties" provision without imposing limitations that would apply to an equitable subrogation action. Mid Atlantic's claim is not considered equitable because it is a subrogation claim, the Court wrote. Rather, it is considered equitable because it is indistinguishable from an action to enforce an equitable lien established by agreement, like the one in Barnes.
For more information on this and related topics, consult the CCH Pension Plan Guide.
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