Compliance August 18, 2020

Liberty Mutual Employees Sue for Retirement Health Coverage

Former employees of the company who were brought on through the 2008 Safeco acquisition say Liberty Mutual is failing to live up to promises it made to provide them with certain retirement health care coverage.

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A proposed class of plaintiffs has filed a new Employee Retirement Income Security Act (ERISA) lawsuit against Liberty Mutual Insurance Co. and its retirement and health care plans.

The lawsuit, filed in the U.S. District Court for the District of Massachusetts, accuses Liberty Mutual of failing to provide to certain former employees “a valuable set” of allegedly promised medical benefits, including post-retirement health care coverage benefits under the Liberty Mutual Health Plan.

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Plaintiffs say the summary plan descriptions (SPDs) that regularly went to employees describing the health care plan, and additional statements by Liberty personnel, all promised these valuable post-retirement medical benefits “commensurate with their years of service,” or “consistent with their hire date.”

“The more tenure an employee had, the greater their benefits under the plan,” the complaint states. “Importantly, Liberty Mutual and the plan promised [plaintiff] and his colleagues that prior years of service with companies Liberty Mutual had acquired, like Safeco Insurance in the case of [plaintiff], would all be counted toward the ‘years of service’ component when calculating Liberty Mutual retirement benefits. The hire date used for calculating retirement benefits, in other words, would be the original hire date at the acquired company.”

The lawsuit states that the lead plaintiff and “hundreds of his colleagues” were part of Safeco when Liberty Mutual acquired that company in about 2008. According to the complaint, when the lead plaintiff retired in 2019, he had worked for 38 years for Safeco/Liberty Mutual.

“Thus, Liberty Mutual had originally promised, in short, to credit [him] with his 38-plus years of total service for purposes of calculating his retirement medical benefits,” the complaint states. “Liberty Mutual made the same promise to everyone who came over from Safeco in the acquisition. However, once it was time for [the plaintiff] and others to retire or apply for their promised benefits, Liberty Mutual reneged. Liberty now takes the position that the prior years of service with Safeco should never have been counted and that they will not be counted.”

The complaint suggests that Liberty Mutual has cut back in this way on promised benefits going to about 700 of its current and former employees. According to the complaint, the lead plaintiff appealed the decision directly to Liberty Mutual and its retirement/health plan committees, but was not successful. The suit states that the plaintiff has exhausted all his administrative remedies to no avail. 

“Liberty Mutual even refused to fairly respond to inquiries and requests for plan information even though it, as a fiduciary, had an obligation to comply,” the complaint states.

Much of the text of the complaint is dedicated to an explanation of what language is and is not allegedly contained in the SPDs at the center of the lawsuit. Additionally, the complaint states that defendants never provided anything in writing clearly indicating that the years of service at Safeco would be excluded for the purpose of calculating benefits.

“The SPDs expressly referred to former employees of Safeco as being ‘grandfathered’ into Liberty Mutual and its retirement plan/benefits,” the complaint states. “The SPDs continued to do so for about 10 years and never suggested that Safeco time would somehow be excluded from the calculation of retirement benefits until [the lead plaintiff in this case] first claimed benefits or objected to not receiving his credit for his Safeco years, and until after [this individual] had many calls with Liberty Mutual and sent correspondence to Liberty Mutual pointing out that the plan and the SPDs promised credit for the Safeco years. Only in 2019, after [plaintiff] reminded Liberty Mutual of its prior promises, did Liberty attempt to modify its SPDs to, now, purportedly exclude Safeco time from prior service credit.”

Liberty Mutual has not yet responded to a request for comment about the lawsuit.

In Practice August 17, 2020

Trump’s Payroll Tax Deferral Raises Concerns on Social Security

The Treasury Department has yet to deliver formal guidance on the deferment. 

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Social Security celebrated its 85th birthday last week, but potential tax changes, including President Donald Trump’s payroll tax holiday, have the potential to shorten its lifespan, financial industry sources say.

Stein Olavsrud, executive vice president at FBB Capital Partners, says the economic contraction caused by the COVID-19 pandemic, high levels of unemployment and the potential for Congress to pass legislation making the tax deferral permanent could significantly shorten the depletion date. But, he tells PLANSPONSOR, “as the executive order stands now, this action will have limited long-term impact to Social Security.”

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Trump’s order also directs the Treasury Department to look into how the government can forgive the deferred payments. While Trump does not hold the power to forgive payroll taxes, Congress does. Olavsrud says he believes it is unlikely Congress will forgive these taxes ahead of the election in November, but doing so would add a significant strain on the solvency of Social Security. “It is certainly possible that Congress may sign a bill to forgive these taxes,” he adds. “Assuming they sign this into law, it most certainly has an impact on the solvency of Social Security.”

Payroll taxes are shared by the employer and employee, each paying 6.2% of wages along with a 1.45% tax for Medicare. The executive order signed by Trump allows a delay in taxes to Social Security from September 1 through December 31 for employees making less than $104,000 a year, but still requires employers to pay their portion.

The Treasury Department has yet to deliver formal rules on navigating the deferment, adding concern for employers that refuse to withhold their share of taxes. “It will be difficult for employers to act until the Treasury Department provides further guidance,” Olavsrud says. Treasury Secretary Steven Mnuchin said that while he encourages employers to withhold the taxes, he cannot mandate that they do so.

An analysis by Akerman LLP states it is currently unclear whether the IRS may calculate interest and penalties for deferred amounts. Without an additional extension or cut, workers would presumably have to reimburse the deferred tax at the start of 2021. In a statement, Senator Ron Wyden, D-Oregon, ranking member of the Senate Finance Committee, explained how the delay creates a liability for employers and workers.

“While employers are unlikely to risk a massive tax liability by not collecting payroll taxes or having to double up collection later, if they do go along with this stunt, it would drain the Social Security trust fund,” Wyden said. “This fake tax cut would also be a big shock to workers who thought they were getting a tax cut when it was only a delay. These workers would be hit with much bigger payments down the road.”

A move by Congress to forgive these taxes altogether would put another 6% to 7% of an employee’s wages back into their pocket, potentially leaving room for savings, including retirement savings. In a webinar hosted by the American Academy of Actuaries, Rachel Greszler, a research fellow in economics at the conservative think tank the Heritage Foundation, suggested American workers can thrive on their own savings rather than government assistance programs. Accessible savings can lead to larger retirement incomes, build transferable wealth for low-income households and increase net savings, investments and productivity, she said.

However, as the payroll tax is Social Security’s primary revenue source, a complete cut could result in damaging effects for current or pre-retirees. According to Greszler, 42% of retirees rely on Social Security for half of their income or more.

There’s already uncertainty about how much longer Social Security will last in its current form. The Social Security Administration estimates the benefit will deplete by 2035, but the Penn Wharton Budget Model, a tool from the University of Pennsylvania that measures the economic impact of national budget policies, claims recent impacts due to COVID-19 will shorten the projected depletion to two to four years earlier. Stephen Goss, the chief actuary of the Social Security Administration, approximates benefits will be payable in full, and on a timely basis, until 2037.

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