Blog - Page 12 of 112 - McKennon Law Group

Life insurance is a policy that financially supports families in case of an untimely death. This policy helps them cope with losing a breadwinner, pay off outstanding debts, or fund future expenses such as education and retirement. However, many people should know life insurance claims’ rules and regulations.

For example, some policies may have exclusions or limitations, such as pre-existing medical conditions or suicide clauses, which may affect your ability to claim.

Furthermore, it is essential to know the exact amount of benefits you are entitled to and any conditions or requirements for payment.

Understanding Life Insurance Law in Canada

The Canadian insurance industry is one of the most stable markets globally, making it an ideal place for life insurance investments. This sector manages over CAD 900 billion in assets and annually disburses over CAD 86 billion in claims and benefits.

Life insurance regulation in Canada dates back to the early 19th century. The first Canadian life insurance company was established in 1849. By the end of the century, life insurance had become essential to the country’s financial structure.

Types of Life Insurance Policies in Canada:

Term Life Insurance: A term insurance policy covers a specified period, usually between 10 and 30 years. The policy pays out a death benefit if the policyholder dies within the term.
Permanent Life Insurance: This insurance policy provides lifelong coverage and accumulates cash value, making them long-term investments.
Whole Life Insurance: This insurance policy offers a fixed premium throughout the policy’s duration, providing death benefits and an investment component that grows over time.
Universal Life Insurance: Universal life insurance combines life insurance coverage with tax-advantaged investment opportunities, allowing policyholders to earn tax-deferred interest on their cash value.

The Life Insurance Claim Process

The steps involved in filing a life insurance claim include the following:

Notifying the Insurer: Notifying the insurer of the policyholder’s death is the first step in filing a life insurance claim. The insurance company will then provide the necessary claim forms and instructions.
Gathering Documents: To file a life insurance claim, you must provide a death certificate, proof of your relationship to the deceased, and other documents like medical records, autopsy reports, and police reports.
Complete the Claim Form: Fill out the form accurately and completely, ensuring you have included all necessary details and supporting documents.
Submit the Claim: Once you complete the claim form and supporting documents, submit them to the insurance company. The insurance provider will review the claim and may request additional information or documents.

In some cases, the insurer might deny your claim if:

The policyholder commits suicide in the first two years of taking out the policy. The insurer may deny the claim.
The policyholder lied or omitted important information on their application.
The policyholder missed their premium payments and the policy lapsed, the insurer may deny the claim.
There is a dispute over the rightful beneficiary; the insurer may deny the claim until the matter is resolved.

The following are some strategies for avoiding a claim denial:

Proper Disclosure and Accurate Paperwork: Ensure you disclose all relevant information when taking out a policy to prevent misrepresentation. Also, complete all necessary paperwork accurately and provide all required supporting documents to avoid claim denials due to incomplete or incorrect paperwork.
Premium Payments: Ensure you pay your premium early to avoid policy lapses.
Choose the Proper Beneficiary: Ensure that the beneficiary named in the policy is correct and keep the policy up-to-date.

The Role of a Life Insurance Lawyer

Life insurance lawyers have expertise in the legal system and can navigate the

often-complex world of insurance law. They can also act as an intermediary between the client and the insurance company, negotiating for the best possible outcome.

There are several situations where hiring a life insurance lawyer is necessary. Suppose an insurance company denies a claim, delays payment, or disputes the policy’s validity. In that case, a lawyer can ensure the beneficiary receives the total owed.

Additionally, suppose there are disputes between beneficiaries, such as multiple people claiming to be entitled to the policy’s proceeds. In that case, a lawyer can help resolve these conflicts.

When choosing a life insurance lawyer, it is essential to consider the lawyer’s experience and expertise in dealing with life insurance claims. In addition, hiring a lawyer who is communicative and responsive to their client’s needs is also essential.

Strategies for Making Successful Claims

Gather Evidence and Documentation: Before filing any claim, ensure you have the necessary documentation and information regarding your claim. Your evidence may include medical reports, police reports, photos, property damage estimates, and witness statements to make your claim compelling and help you prove your case to the insurance company.
Understand Your Policy and Coverage: Ensure you understand your insurance policy’s details before making a claim. You should know what is covered, what is excluded and what limits apply to help you avoid claim denials.
Be Detailed and Specific: Vague or incomplete information can lead to claim denials. Therefore, include all relevant information about the incident, the damages or injuries suffered, and any other relevant information supporting your claim.
Negotiate with the Insurer: If the insurer denies your claim or offers a lower payout than expected, you can negotiate with them. You can use evidence and documentation to support your case and argue for a higher payout. It’s essential to remain calm and respectful when negotiating with the insurance company to help you build a better relationship with the insurer and increase your chances of success.
Seek Legal Assistance: If your insurance claim is denied or underpaid, you can seek legal assistance. Consulting a lawyer specializing in insurance claims can help you understand your legal rights, negotiate with the insurance company or get representation in court.

Here are some tips for maximizing your life insurance payout:

Name Multiple Beneficiaries: Naming multiple beneficiaries ensures that your payout is distributed according to your wishes and reduces the likelihood of disputes between family members.
Review Your Policy Regularly: It’s essential to review your insurance policy to ensure that your coverage remains adequate and that your beneficiaries are up-to-date.
Be Honest on Your Application: Accurate and truthful information on your life insurance application can prevent claim denials and ensure your beneficiaries receive the total payout.
Pay Your Premiums on Time: Paying your premiums on time ensures that your policy remains in force, and your beneficiaries are entitled to the total payout.
Consider Getting Professional Advice: If you have a comprehensive life insurance policy, seeking professional advice from a financial advisor or attorney may be beneficial to ensure your beneficiaries receive the maximum payout.

Common Issues with Life Insurance Claims in Canada

Some common disputes between policyholders and insurers in Canada include:

Misrepresentation: This could involve misrepresenting information about their health, lifestyle, or occupation.
Suicide: Many life insurance policies have a suicide clause prohibiting the insurer from paying out a claim if the policyholder died by suicide within a certain period after taking out the policy, typically one or two years. However, disputes may arise if the death is not a suicide or if the policyholder died by suicide outside of the exclusion period.
Exclusions and Limitations: Many life insurance policies have exclusions or limitations on what they will cover, such as death due to a pre-existing condition or death due to a risky activity. Disputes may arise if the cause of death is ambiguous or the policyholder does not fully understand the exclusions or limitations.

Recent Court Cases Related to Life Insurance Claims

In a misrepresentation case (Sietzema v Economical Mutual Insurance Company, 2018 ONCA 71). The Ontario Court of Appeal ruled that an insurer did not have to pay the policyholder’s wife a death benefit after the policyholder failed to disclose his history of depression and anxiety when applying for the policy.

In a case involving suicide (Young Estate v. Aviva Canada Inc, 2018 BCCA 98). The British Columbia Court of Appeal ruled that an insurer could not deny a claim where the policyholder died by suicide within the exclusion period. Still, the insurer could not establish that the death was a suicide.

Some key strategies for avoiding disputes with insurers include:

Be Honest: When applying for an insurance policy, honesty about your health, lifestyle, and occupation is essential. Failure to disclose relevant information could result in a denial of a claim.
Read the Policy: It is necessary to read the insurance policy carefully, including any exclusions or limitations, to understand what is covered and what is not.
Stay Up-to-Date: Keep your policy up-to-date by updating your beneficiary designations.

Recent Developments in Life Insurance Law in Canada

Recent developments in life insurance law in Canada include changes to the definition of “critical illness” or “total disability” for life insurance policies. It also has new regulations around genetic testing in underwriting decisions and obligations on insurers to provide detailed explanations of denied claims.

These changes have significantly affected policyholders and insurers alike.

Policyholders’ existing coverage may provide a different level of protection than before. For insurers, it may mean increased scrutiny from regulators and a need to adapt their underwriting and claims processes.

Policyholders and their advisors should review existing policies and understand any changes in the legal definitions of key terms affecting coverage to navigate these changes. Furthermore, advisors and policyholders should stay current on new regulations and industry developments that may impact future insurance needs.

Expert Insights on Life Insurance Law in Canada

Life insurance lawyers and experts possess specialized knowledge and skills in life insurance law. They help policyholders navigate the claims process to obtain a favourable outcome. Conducting interviews with these professionals can provide valuable insights into the legal framework governing life insurance in Canada and current industry trends and challenges.

Analyzing recent industry trends and challenges can help policyholders and lawyers stay up-to-date on changes to the legal and regulatory landscape governing life insurance in Canada. This can include changes to laws and regulations governing coverage, claims handling, and dispute resolution.

The life insurance claim process can be complex and challenging, particularly for those who need legal expertise. Policyholders should understand the coverage and benefits provided to succeed in the claims process.

In addition, policyholders should remain persistent even if a claim is denied or disputed by engaging legal representation. Pursuing the claim through legal channels may be necessary.

Get The Compensation You Need

Losing a loved one can be challenging, and dealing with the legalities surrounding their life insurance policy at the same time can also be overwhelming. Understanding how life insurance law in Canada is essential to help individuals seek financial security for their loved ones in case of an untimely demise.

The Canadian insurance industry offers a variety of life insurance policies, each with its unique features and benefits, making it easy to choose a policy that suits your specific need. With the expert strategies we’ve shared, we hope you are better equipped to create a claim and receive the benefits you’re entitled to.

In a case of first impression in California, McKennon Law Group PC has successfully defeated American General Insurance Company’s (“American General’s”) attempt to dismiss the counterclaims of our client, Nguyet Minh Le, in federal court in the Central District of California. McKennon Law Group PC is an insurance litigation law firm that attempts to compel insurance companies to pay insurance benefits that the insurers improperly refuse to pay. In some of our cases, unusual circumstances arise. Ms. Le’s case was one of those cases. We were hired to address an insurer’s negligence and recklessness when it paid over $1,000,000 in life insurance proceeds to the wrong person: Ms. Le. American General mistakenly paid her because it thought she was the true beneficiary of a life insurance policy it issued. Because of its gross negligence, American General confused Ms. Le with another beneficiary and confused the insured as Ms. Le’s husband. It sued Ms. Le to recover the money it paid to her. She turned to us for help. We mounted a vigorous defense against American General’s lawsuit and also countersued American General for negligence, negligent misrepresentation, and fraud. American General attempted to convince the court to dismiss Ms. Le’s counterclaims. In a June 22, 2023 opinion, the court concluded that Ms. Le had properly alleged claims against American General. See Am. General Life Ins. Co. v. Nguyet Minh Le, EDCV 22-867, slip op., (C.D. Cal. June 22, 2023). The question before the court had never been litigated in California previously: when a person is mistakenly paid life insurance benefits and relies on that money to pay off loans, buy cars, and otherwise make expenditures she would not have otherwise made, does she have a cause of action against the insurance company for wrongfully and negligently paying her life insurance benefits? The federal court answered this question with a resounding “yes.”

Ms. Le’s story is a sad and unusual one. Her husband passed away. Before his death, he informed Ms. Le that he had life insurance. However, he did not provide specific details about the policy. After his passing, Ms. Le contacted the National Association of Insurance Commissioners (“NAIC”) about the potential policy. The NAIC offers a service that helps people locate unclaimed life insurance benefits. In response to the inquiry to the NAIC, American General contacted Ms. Le. They informed her that her late husband had over one million dollars in life insurance coverage.

In fact, Ms. Le’s husband was not covered under the million-dollar policy that American General had identified. American General provided our client with a claim form and encouraged her to file a claim for the million dollars. When she did so, American General encountered numerous errors in its system. Unbeknownst to our client, various pieces of her and her husband’s identifying information did not match American General’s records for the policy. The Social Security numbers for the actual insured and Ms. Le’s late husband did not match. The Social Security numbers for the beneficiary and our client did not match. Our client and her husband lived in California. The policy’s insured and beneficiary did not live in California. American General still insisted that our client was the proper beneficiary and it paid her the policy’s death benefit.

After receiving the death benefit, Ms. Le drastically altered her life. She quit her job, she purchased an expensive car, she traveled, she paid expenses for her family members and she otherwise spent hundreds of thousands of dollars that she would not have spent had she not received over $1,000,000. She adjusted to a new life with these additional funds.

After having paid Ms. Le the death benefit, American General realized that it had erred. American General promptly sued our client to recover the money it had paid her. We responded to American General’s lawsuit with a counterclaim for negligence, negligent misrepresentation, and fraud. American General filed a motion to dismiss the counterclaim.

American General raised a variety of arguments why Ms. Le’s counterclaims should be dismissed. Its first argument was that the litigation privilege compelled the court to dismiss Ms. Le’s claims. The litigation privilege “precludes liability arising from a publication or broadcast made in a judicial proceeding or other official proceeding.” Fremont Reorganizing Corp. v. Faigin, 131 Cal.Rptr.3d 478, 493 (Ct. App. 2011). “[C]ommunications with some relation to judicial proceedings are absolutely immune from tort liability by the litigation privilege.” Chaffey Joint Union High Sch. Dist. v. Fieldturf USA, Inc., 2016 WL 11674265, at *2 (C.D. Cal. May 19, 2016). In its motion, American General argued that Ms. Le’s claims all arose out of it attempting to take the money back and, therefore, the litigation privilege applied because its attempts to take the money back were inherently part of litigation. Ms. Le argued that her statements were “non-communicative” in nature and it was American General’s negligent and/or reckless handling of the claim and insurance proceeds that had caused her harm, and thus the privilege did not apply. The Court dismissed American General’s argument. It explained that “American General’s alleged negligent and reckless acts were not communications made in a judicial proceeding or in connection with a judicial proceeding, and [thus] do not qualify for the litigation privilege.” See Nguyet Minh Le, EDCV 22-867, at **4-5. The mishandling of the claim and payment of insurance proceeds were the acts at the root of Ms. Le’s harm.

American General also argued that our client had not suffered any harm from its actions. The Court again disagreed. It explained that taking on financial obligations because of American General’s actions constituted a legally recognizable harm. See id. at **5-6.

American General next argued that Ms. Le could not bring a claim for fraud. “Under California law, the elements of a cause of action for fraud are: (a) misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or ‘scienter’); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage.” Id. at *6 (citations omitted and emphasis in original). Given that an insurance company would not knowingly give the wrong person a million dollars, American General insisted that Ms. Le’s fraud claim failed as a matter of law. American General’s argument was incorrect. As the Court explained, if American General had acted recklessly, then, in fact, Ms. Le could bring a claim for fraud. Even if an entity does not know that it made misrepresentations, if it made statements in reckless disregard for the truth, the harmed party may still bring a claim for fraud. The Court found that Ms. Le had adequately alleged that American General had acted recklessly. As the Court explained, “The Court cannot overlook American General’s failure to investigate the mismatching SSNs, or take further steps to confirm the identity of the claimant before dispersing more than a million dollars in funds.” Id. at *7.

Finally, American General argued that it did not owe a duty of care to Ms. Le. Ms. Le’s negligence claims all required her to establish that American General owed her a duty of care. A “duty of care” is the legal requirement that a person act toward another with the care and prudence that a reasonable person would use. This duty does not extend to all people under all circumstances, and American General argued that no such duty extended from American General to Ms. Le in this context. The Court found that American General did owe Ms. Le a duty of care. As it explained:

[T]he Court concludes that American General owed a duty of care to Ms. Le because it treated her as if she were the proper beneficiary under the insurance policy. . . . Although the original life insurance policy was not intended to affect Ms. Le, it was highly foreseeable that if American General made Ms. Le believe she was the proper beneficiary of the policy [although] she [actually] was not, she would be harmed by the misrepresentations. Ms. Le certainly suffered injury by undertaking financial obligations she would not have [undertaken] if she were not paid the insurance money. American General’s alleged conduct directly caused Ms. Le’s injury. According to Ms. Le, she had done no more than request information of policies that matched her and her late husband’s information, and it was American General that contacted her and informed her that she was a beneficiary. American General’s mess was of its own making. Public policy should incentivize insurance companies to handle claims with reasonable care, such as to confirm basic identifying information, before dispersing more than a million dollars in funds. The Court is confident that Ms. Le’s circumstances are unusual enough that finding a duty of care here would not have an outsized “adverse impact on a class of defendants upon whom the duty is sought to be imposed.” Cf. Adelman v. Assoc. Int’l Ins. Co., 108 Cal. Rptr. 2d 788, 796 (Ct. App. 2001).

Id. at *8 (emphasis in original). The Court concluded that an insurer owes a duty of care when telling people that they are entitled to benefits under a life insurance policy.

The Court’s denial of American General’s motion was significant. Not only did it allow Ms. Le to pursue her claims in Court, but it also set the precedent that insurance companies cannot recklessly conduct their business and then just walk away with a complete disregard for the lives that they damage. When people receive significant amounts of insurance proceeds, they often make life-altering decisions based on the money that they received. An insurer must be held accountable for its actions.

5 Recent Changes and How They Impact Retirement Plans

Many Americans work for decades to save for retirement and diligently save money for the future. When an employer offers a pension or other retirement plan options, it can be helpful to those trying to save for retirement, especially when an employer matches employee contributions or offers other retirement incentives.

The SECURE 2.0 Act of 2022 (SECURE 2.0 Act) can benefit many working Americans by making it easier to save for retirement. The SECURE 2.0 Act was signed into law on December 29, 2022 to address issues related to retirement and savings. The SECURE 2.0 Act creates new flexibility and accessibility to help individuals plan for a more secure future.

Most of the SECURE 2.0 Act’s provisions take effect in 2024 (or later). At that point, a company will likely be required to automatically enroll eligible employees into its retirement plan, and employers who start new retirement plans will be required to automatically enroll employees at a rate of at least 3%, beginning in 2025. Exceptions to this requirement are new companies in business for less than three years and businesses with 10 or fewer workers.

Any change to the laws governing retirement plans can bring confusion for employers and employees alike. It is therefore important to stay up to date on these plans and your rights so you know whether you are receiving the benefits to which you are entitled. Some information about these changes is provided below. To learn more about these changes or get answers to frequent questions about ERISA, reach out to the expert ERISA attorneys at McKennon Law Group PC.

Employer Matching Based on Student Loan Payments

Around 43 million Americans carry student loans (as of 2023), making it even harder to save money in a retirement plan. This new update allows employers to offer an optional benefit that helps those paying student loans save for the future.

Beginning in 2024, student loan payments may be considered retirement contributions for the purpose of qualifying for matching contributions in a retirement account. Employers will also be able to contribute to company retirement plans on behalf of employees who are paying student loans rather than saving for retirement. This allows employers providing qualified retirement benefits to amend their plans so that qualifying student loan payments trigger a contribution match.

For example, an employer offering a 3 percent match (meaning it contributes up to 3 percent of the employee’s salary when the employee does the same) will now be able to choose to count student loan payments as the employee’s “contribution” and match it even if the employee is not contributing that much directly to the retirement plan.

It is important to note that employers can decide whether to implement this change; it is not an automatic right for those with retirement plan benefits.

New Options for Penalty-Free Early Withdrawals

Withdrawing funds from your retirement plan prematurely (before reaching the required retirement age) may result in a 10 percent early withdrawal penalty by the Internal Revenue Service (IRS). While people have some options allowing them to withdraw money as a loan to cover certain types of expenses, the SECURE 2.0 Act adds to those options. For example, The SECURE 2.0 Act will allow for temporary borrowing from retirement plans without a penalty to pay for long-term care coverage premiums, for emergency withdrawals of $1,000 per year, and for emergency savings accounts for some employees.

Limitations on Catch-Up Contributions for Some Workers

The SECURE 2.0 Act will also limit some employees’ ability to make catch-up contributions. Individuals who make more than $145,000 annually will not be able to make pre-tax catch-up contributions, although they will still be able to make after-tax catch-up contributions pursuant to the limitations set each year by the IRS. This may impact how much individuals are able to save via such contributions.

However, the SECURE 2.0 Act will also allow people aged 62 to 64 (depending on the plan) to contribute even more in catch-up contributions to qualifying plans. The maximum amount allowed will be adjusted annually to account for inflation.

Mandated Automatic Enrollment for New Retirement Plans

Starting in 2025, most major employers will be required to automatically enroll employees in any qualifying retirement plans offered. Currently, the trend is for employers to offer the plan and assume employees are not interested if they do not elect to enroll. The SECURE 2.0 Act reverses this assumption and the employee must elect to not enroll. This is a substantial change, especially considering that automatic enrollment defers 3 to 10 percent of a person’s income.

Higher Ages for Mandatory Distributions

Whereas employees previously had to take the required minimum distributions (RMDs) from their retirement each year beginning when they were 72, the SECURE 2.0 ACT increases the age for RMDs to 73 in 2023, and to age 75 by 2033. Once a person reaches the age for required RMDs, he or she must take RMDs every year or face tax penalties.

Being required to take minimum distributions can be an issue for individuals who do not yet need such an amount from their retirement and want to leave it in investment accounts or avoid paying taxes on the income in that year. This change therefore protects those who want to wait to take RMDs. Because these age thresholds do not stop persons from taking distributions earlier, the change serves to benefit those who want to wait.

Choose an ERISA Pension Attorney Who Will Fight for Your ERISA Rights

The laws related to retirement plans and benefits are detailed and complicated. Understanding your rights as to pension benefits is critical to protecting your access to those benefits. Employers and ERISA plans often deny claims for pension benefits. If an employer or ERISA plan denies your claim for retirement benefits, or any other ERISA claim (such as disability, life, health or accidental death and dismemberment), the knowledgeable and experienced attorneys at McKennon Law Group PC can help. Reach out to McKennon Law Group PC now for a free consultation.

What Are The Differences Between Accidental Death And Dismemberment insurance And Life Insurance?

The main difference between AD&D insurance and life insurance is the types of events they cover. Both provide coverage in the case of the death of the insured, although accidental death and dismemberment insurance, as the name suggests, only covers a death if it is caused by an accident, as defined in the policy. AD&D Policies define accident differently and all have various types of exclusions, such as intentional acts, self-inflicted injuries, and medical conditions that cause or contribute to an accidental death.

AD&D insurance is usually added to a standard insurance policy, as a rider or supplemental insurance. AD&D insurance generally does not stand on its own, but rather as a product added on to a standard policy. Death benefits for an accidental death are not included in a standard life insurance policy, but having AD&D coverage on top of the standard life policy provides for an additional benefit for an accidental death covered by an AD&D policy.

Is A Sudden Death Because Of Illness Considered An Accidental Death?

Accidental death and dismemberment policies exclude coverage for death resulting from a sudden onset of illness. Similarly, if the insured person undergoes medical treatment and subsequently passes away, the death may be excluded from AD&D coverage. The Covid-19 pandemic has brought this factor into a new light as it relates to AD&D insurance. Because Covid-19 is a medical condition, death resulting from Covid-19 will likely be excluded from coverage under most AD&D policies. However, if the exact cause of death is uncertain and whether death is caused by an underlying condition or if some other cause cannot be determined, the matter may need to be litigated to determine whether AD&D coverage applies or is excluded. It is critical that if you believe you have an AD&D claims resulting from an accidental death, you should consult an accidental death insurance lawyer to assist you to determine if you have a covered claim. Many times we find that persons who think they do not have a valid accidental death insurance claim actually do have a valid claim.

What Is A Dismemberment Claim?

Dismemberment coverage applies when a covered person loses a body part or function, or loses the use of a body part or function. Examples of dismemberment that AD&D may cover include:

• Permanent or partial loss of limb or limbs
• Permanent or partial paralysis of limb or limbs
• Loss of speech
• Loss of eyesight
• Loss of hearing

However, coverage varies from policy to policy. The exact coverage will be delineated in the policy.

In cases where an underlying condition contributes to an injury, the many courts will follow what is called a substantial contribution standard. This means that if injuries result from an accident (like a car accident) and require an amputation, the courts will have to determine if the insured had any underlying condition that substantially contributed to the need for amputation. If so, the amputation would be excluded from coverage. If not, there may exist a valid accidental death insurance claim.

If The Deceased Person Was Partially At Fault In Causing The Accident, Does Their AD&D Insurance Still Apply?

As noted above, AD&D policies come with a list of applicable exclusions, which typically include self inflicted injuries or death and deaths occurring in the course of committing a crime. For example, if an insured with AD&D insurance slips, falls, and dies while they are robbing a bank, their death would be excluded from coverage. However, an exclusion will not apply to AD&D coverage unless it is specifically and clearly notated in the policy. Insurers always have the burden of proving the applicability of any exclusions in their policies.

Should I Have Both Life And AD&D Insurance?

Having both life insurance and AD&D insurance is not always necessary but it is recommended. The cost of AD&D insurance is low because the risk of accidental death is low for the average American. Given a choice between the two, life insurance offers a much more stable and secure financial plan if you or a family member pass away. But if you have a job or live a lifestyle that carries a higher risk of accidental injury or death, you should consider AD&D insurance in additional to traditional life insurance.

The dedicated and knowledgeable accidental death insurance attorneys at McKennon Law Group PC are available and ready to answer questions you may have about life insurance, AD&D insurance, and how the two differ. McKennon Law Group PC offers free initial consultations, so you risk nothing by contacting us with your questions.

Defined Benefit Plans vs. Defined Contribution Plans: What You Need to Know

Saving for retirement is a common goal for many. One means of achieving this is for employees to take advantage of different types of retirement benefits offered by their employers to save money for their future retirement. Different retirement plans provide different options for how you can save, how much you can save, and what benefits you can expect from your employer. It is important to have an understanding of your benefits that allows you to protect yourself in the case that you are denied your benefits.

The Employment Retirement Income Security Act of 1974, or ERISA, is the federal statute that protects employees’ benefits. You can find out all you need to know about ERISA on our frequently asked questions page and on our ERISA and Insurance Litigation Blog. If you believe you are not getting your benefits, reach out to us to find out how we can utilize ERISA to help you recover the benefits you are owed.

Additionally, find out more about the difference between defined benefit plans and defined contribution plans below.

What Is a Defined Benefit Plan?

A defined benefit plan is a retirement plan that promises to pay a specific benefit each month once you reach a certain age. The plan defines the age of eligibility, commonly between 62 and 65. Some defined benefit plans promise a specific dollar amount as a benefit, like $200 per month once you reach retirement age and retire. Others promise a benefit that is calculated based on your salary and years of service with your employer.

For example, determining the benefit might involve calculating your average salary over the last few years and multiplying it by a percentage determined by your years of service with your employer(s).

Positive Aspects of Defined Benefit Plans

Employers often contribute more to defined benefit plans than to defined contribution plans every year, which can benefit you in the form of tax savings. A defined benefit plan may also allow you to accrue more benefits in less time than with other plans, depending on the plan structure. A defined benefit plan also allows you to rely on the security of predictable payments in retirement.

Example of a Defined Benefit Plan

Imagine that Bob works for a company that offers a defined benefit plan. Bob’s employer contributes a certain amount to the plan. The plan, or a contracted third party, will then invest the contributions. Bob does not have any say in those investments or how they are handled, but his employer guarantees that Bob will receive a certain pension benefit upon retirement, which may be $100 per month in pension funds for every year he works for his employer. If Bob worked 10 years with the employer, his employer would guarantee him a pension of $1,000 per month.

What Is a Defined Contribution Plan?

A defined contribution plan is a savings vehicle that helps employees save for retirement, but it does not provide a specific promised benefit amount. The employee contributes to the plan, typically with pre-tax dollars. The employer may match the employee’s contribution up to a certain amount.

Contributions are invested to accrue additional value over time. Once you reach retirement age, you can begin to withdraw from the retirement plan as needed and according to IRS tax requirements. Examples of defined contribution plans include 401(k) and 403(b) plans.

Positive Aspects of a Defined Contribution Plan

While employee and employer contributions are capped at lower annual rates annually in a defined contribution plan, contributions are discretionary, allowing for greater flexibility in employers offering, and employees participating in, such plans. Defined contribution plans tend to be more common in the private sector today and are more favored by many employers, partly because they are less complex and less expensive to manage than defined benefit plans.

Hypothetical Example of a Defined Contribution Plan

Use Bob as an example again, but now he has a defined contribution plan rather than a defined benefit plan. Bob decides to contribute 4% of his salary to the plan and the employer matches up to 3%. The money contributed goes into a retirement fund specifically for Bob, and he is able to see and make changes to how the money is invested. Bob can decide whether he wants to play it safe or be a bit more aggressive with his retirement investments.

When he retires, Bob does not receive a specific amount every month based on his tenure and average salary. Rather, he can simply withdraw the amounts he needs, in accordance with IRS rules, from his retirement fund.

Does ERISA Cover Both Defined Benefit and Defined Contribution Plans?

Both a defined benefit and a defined contribution plan are covered by ERISA, so long as the plan is offered as an employer-sponsored benefit by a business in the private sector.

What If You Are Being Denied the Benefits You Are Owed?

Based on the above information, the importance of understanding the nature of your retirement benefits is clear. If you do not understand how your benefits work, you do not know whether you are getting what you are owed.

If you believe you are not getting the benefits you are owed, your best course of action is to reach out to someone with expertise in handling ERISA pension/retirement matters, like the experienced ERISA attorneys at McKennon Law Group PC. The knowledgeable ERISA pension attorneys at McKennon Law Group PC have helped their clients recover benefits owed to them and can help ensure that you receive the pension benefits you are due under your pension plan. Contact McKennon Law Group PC today for more information.

In the case of Irina Morris v. Aetna Life Insurance Company, the Ninth Circuit Court of Appeals made a significant ruling that favors ERISA plan participants. The court’s decision in Bafford v. Northrup Grumman Corp. had previously established that a third-party administrator’s incorrect plan benefit calculation is not a fiduciary duty breach if it is within the framework of a preset policy set by another. Insurers and administrators relied on this ruling to avoid liability for miscalculating plan participants’ benefits.

However, the Morris case expanded the definition of fiduciary function and increased the potential liability for insurers and administrators. The court clarified that an ERISA insurer can still be held liable for fiduciary duty breaches if they exercise discretion in other misconduct related to ministerial benefit calculation errors that harm the plan participant.

Aetna argued that Bafford controlled the outcome of the case because their error was a ministerial calculation mistake. The court rejected this argument, emphasizing that Aetna’s subsequent actions, which were discretionary and central to Morris’s injury, qualified as fiduciary functions.

The court identified several instances where Aetna performed fiduciary functions involving discretion after its calculation error. They provided Morris with individualized consultations and engaged in extensive communication regarding her monthly plan benefit. Unlike the automated online mechanism in Bafford, Aetna’s benefits specialists consulted with Morris by phone, sent letters for her to share with lenders, and communicated with her financial institutions.

Aetna’s communication of the incorrect benefit amount to Morris and her lenders was deemed a fiduciary function due to the extent of Aetna’s involvement in her financial life. Despite Morris questioning the accuracy of the benefit calculation, Aetna affirmed the erroneous amount for nearly a decade, leading Morris to make significant financial decisions based on the misinformation.

The court also ruled that Aetna exercised discretion and performed a fiduciary function when gathering Morris’s earnings information and interpreting the plan’s terms to determine her monthly benefit amount. This was different from the ministerial calculations in Bafford, where a third-party administrator followed a preset online formula without discretion.

The Morris court restated the designated Ninth Circuit ERISA fiduciary duty law, emphasizing that a breach of fiduciary duty must occur in connection with the performance of a fiduciary function. The key question in fiduciary breach cases is whether the fiduciary was performing a fiduciary function when the complained action took place.

The ruling in the Morris case expands the potential liability for ERISA plan insurers and administrators, highlighting the importance of exercising their discretion properly to act in the best interests of plan participants. With the help of McKennon Law Group PC, an insurance and ERISA litigation law firm in Newport Beach, California, Irina Morris was able to get the justice she rightfully deserved for her case.

McKennon Law Group PC has a long track record of successfully representing and fighting on behalf of clients dealing with insurance and ERISA-related disputes. With a pay-if-you-win structure, there is hardly any risk to seeking out their help – no matter how big or small your insurance dispute is. Get in touch with McKennon Law Group PC today at 949-504-5381 to book an initial consultation.

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