Court States ERISA Gives DOL "Exceedingly Broad" Rulemaking Authority in Disability Benefit Dispute

On September 11, 2024, Judge Anthony J. Trenga of the U.S. District Court for the Eastern District of Virginia issued an order requiring Reliance Standard Life Insurance Company (Reliance) to retroactively award long-term disability (LTD) benefits plus interest to a plaintiff with long COVID. Cogdell v. Reliance Standard Life Insurance Co., No. 1:23-cv-1343 (E.D. Va. Sept. 11, 2024). In doing so, the court declined to invalidate the regulation governing ERISA benefit claims under Loper Bright Enterprises v. Raimondo, finding Reliance's facial challenge to the regulation untimely, not properly raised in a suit seeking benefits, and deficient on the merits.

According to the decision, the plaintiff was a successful engineer at MITRE, but after contracting COVID-19 in 2021 and again in 2022, struggled to fulfill the material responsibilities of her job because of shortness of breath, dizziness, and fatigue. In 2023, the plaintiff applied for long-term disability due to long COVID and Reliance denied her claim. After the plaintiff appealed the denial of benefits, Reliance failed to issue a decision within 45 days and the plaintiff filed a complaint in court seeking a benefits determination based on the administrative record.

U.S. Department of Labor (DOL) regulations require a plan administrator to make a decision on a disability benefit appeal within 45 days, otherwise the claim will be considered administratively exhausted. The court recounted that if an ERISA plan administrator fails to follow ERISA's procedural requirements, a benefits claim is considered administratively exhausted and subject to a de novo standard of review, instead of a more deferential, administrator-friendly abuse of discretion standard. In its defense of the plaintiff's suit, Reliance cited Loper Bright and claimed that the 45-day rule was invalid because DOL exceeded the scope of its authority when issuing the claims regulation. Reliance further argued that because the regulation containing the 45-day rule is invalid, any failure on its part to complete its review of the plaintiff's appeal within that timeframe should not render plaintiff's claim administratively exhausted and destroy the deference its decision would otherwise enjoy under applicable law. 

The court denied Reliance's motion for summary judgment and ordered LTD benefits be paid to the plaintiff. In reaching its decision, the court found that Reliance's challenge to the claims regulation, raised for the first time in oral argument, was untimely and that nothing in Loper Bright "changed the landscape in such a way to permit Reliance now to bring a facial challenge that it could not have brought previously." The court also faulted Reliance for not raising its facial challenge in a suit filed under the Administrative Procedure Act (APA) but instead asserting it in a benefits dispute. According to the court, Reliance raising the challenge in the instant case instead of an APA suit "frustrates one of the intended legislative purposes of the APA, with its six-year statute of limitations that Reliance would otherwise face in bringing such a challenge." The court stated that because Reliance faced similar consequences in the past from violations of the claims regulation it now asserts is unconstitutional, "it would almost certainly be foreclosed from bringing a facial challenge under [the APA]."

On the merits, the court held that the 45-day rule did not run counter to the "exceedingly broad" grant of authority ERISA conveys to DOL to promulgate "necessary and appropriate" regulations to secure employee benefit rights. The court also held that the claims regulation "merely sets a time limit for claim exhaustion" and does not dictate a particular standard of review. According to Judge Trenga, "it is clear that the standard of review is neither expressly nor effectively controlled by the regulation, and the regulation does not run afoul [of Loper Bright]." The court also found that Reliance had, in fact, departed from the procedural requirements with regard to the plaintiff's benefits claim because there was no valid reason for Reliance to seek an extension of the 45-day limit.

Aetna Faces Suit Alleging Discrimination for Gender-Affirming Facial Reconstruction Exclusion

On September 10, 2024, three transgender women filed a putative class action lawsuit against Aetna Life Insurance Company (Aetna) alleging Aetna's denial of coverage for gender-affirming facial reconstruction (GAFR) procedures and its coverage exclusion for such treatment violates the Affordable Care Act's (ACA) prohibition on discrimination on the basis of sex in federally funded health programs and activities. Gordon v. Aetna Lift Ins. Co., No. 24-1447 (D. Conn. Sept. 10, 2024). One of the plaintiffs is covered by an Aetna plan in the Federal Employees Health Benefit (FEHB) Program and the other two plaintiffs are participants in Aetna-administered self-funded health plans offered by their employers. The lawsuit alleges all three plaintiffs were denied prior authorization for GAFR, despite their medical providers having determined the treatment was medically necessary.

The complaint alleges that although the plaintiffs' plans characterize GAFR as "cosmetic," the procedures "are considered medically necessary when used to treat gender dysphoria in transgender people." The plaintiffs analogize the treatment to breast augmentation for transfeminine people, which they assert Aetna already covers as reconstructive and medically necessary when used to treat gender dysphoria. According to the complaint, the plan exclusion for GAFR "discriminates on its face by categorically excluding facial surgeries only when performed 'as a component of gender transition,' regardless of medical necessity." In contrast, the complaint claims that when facial reconstructive surgery is performed for other reasons, such as after a traumatic injury or as part of treatment for cancer, Aetna makes "individualized medical necessity determinations."

The complaint contains a single cause of action for unlawful discrimination on the basis of sex in violation of section 1557 of the ACA and seeks a declaratory judgment that the objected-to plan exclusion is unlawful, an injunctive enjoining enforcement of the exclusion, and compensatory damages for all individuals covered by a health plan offered, underwritten, or administered by Aetna who have had to pay out of pocket for gender-affirming facial surgery because of the exclusion. The plaintiffs assert that Aetna is subject to section 1557 because it receives federal financial assistance.

The complaint lists a growing number of states, including Colorado, Illinois, Maryland, New York, Oregon, and Washington, with laws addressing coverage of GAFR. It also notes that the U.S. Office of Personnel Management (OPM) has prohibited categorial exclusions for gender-affirming care, including GAFR, by FEHB plans. 

IRS Extends, Advises on SECURE 2.0 Compliance Deadlines

The Internal Revenue Service (IRS) is reminding plan sponsors that several deadlines have been extended and harmonized for complying with recent changes in retirement policy. Earlier this year, the IRS issued Notice 2024-2, providing guidance with nearly 90 Q&As on timely compliance for amending plans to reflect changes made by the SECURE 2.0 Act and other predecessor legislation. The IRS notes that:

• A qualified plan that is not a governmental plan (within the meaning of IRC 414(d)) or an applicable collectively bargained plan must be amended by December 31, 2026
• A 403(b) plan that is not maintained by a public school must be amended by December 31, 2026
• A trust governing an individual retirement account (IRA) or the contract issued by an insurance company with respect to an IRA that is an individual retirement annuity must be amended by December 31, 2026, or such later date the Secretary prescribes in guidance
• An applicable collectively bargained plan must be amended by December 31, 2028
• A 403(b) plan that is an applicable collectively bargained plan of a 501(c)(3) must be amended by December 31, 2028
• A governmental plan (within the meaning of IRC 414(d)) must be amended by December 21, 2029
• A 403(b) plan sponsored by a public school must be amended by December 31, 2029
• An eligible 457(b) plan sponsored by a state or local government entity must be amended by the later of December 31, 2029, or if applicable, the first day of the plan year beginning more than 180 days after the date of notification by the Secretary of the Treasury that the plan was administered in a manner inconsistent with section 457

Amendments to a plan must be retroactive to cover affected time periods and remain compliant with plan amendments in place ahead of any allowable changes made pursuant to the SECURE 2.0 Act.

Finally, the IRS has announced updates to Form 4461-A and Form 4461-C, which are used to apply for pre-approved standardized or non-standardized plans. Starting September 1, 2024, applications for approval of pre-approved plans on Forms 4461-A and 4461-C must be submitted electronically, affecting applications for Cycle 1 403(b), Cycle 2 403(b), and Cycle 3 DB opinion letters. The IRS advises that filers "indicate in your cover letter accompanying the Form 4461-C application for your 403(b) pre-approved plan if it is for Cycle 1 or Cycle 2."

Upcoming Speaking Engagements and Events

Joanne is speaking at the ERISA Industry Committee 2024 Virtual Fall Policy Conference on September 24 and the American Bar Association Virtual 2024 Tax Meeting on September 26.

In the News

Joanne comments on the potential legal hurdles for the mental health parity rule in Bloomberg Law.

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