Employment and Benefits
In Lees v. Munich Reinsurance America, Inc., a federal district court in New Jersey recently held that an oral misrepresentation could serve as the basis for a fiduciary breach claim.
The plaintiff in Lees worked for American Re-Insurance Company (a predecessor of the defendant), but was being paid by…
Continue Reading Oral Misrepresentation Could Support Fiduciary Breach Claim, District Court Holds
Two cases decided in January—one by the Sixth Circuit and another by the District Court for the District of Columbia—offer a cautionary tale to plan sponsors who rely on a statute or regulation that allows retroactive amendments to tax-qualified plans. Both cases involved a change to the interest and mortality assumptions that pension plans use to calculate the minimum amount of a lump sum distribution. The change was expressly authorized by a statute, but the Pension Benefit Guaranty Corporation said “not so fast”—leaving the plan sponsors responsible for several million dollars in additional liabilities.
The cases offer a cautionary tale for plan sponsors: practices that are permitted in one context will not necessarily be accepted in other contexts. For this reason, it is important to conduct a thorough analysis before relying on agency guidance or accepted practice.Continue Reading Two Recent Cases Offer Cautionary Tale to Plan Sponsors Relying on IRS Guidance
A complaint filed this month against FedEx Corporation and its pension plan asks a court to apply the Supreme Court’s decision in Windsor v. United States retroactively. The case is Schuett v. FedEx Corporation. The plaintiff is the surviving same-sex spouse of a FedEx pension plan participant who died six days before the Court issued its opinion in Windsor.
Case background. The participant and the plaintiff began living as a couple in 1983. The participant worked as a FedEx delivery driver for 26 years while the plaintiff stayed home to care for the couple’s two children. The participant was diagnosed with cancer and learned on June 3, 2013, that her condition was terminal. Already registered as domestic partners in California, the couple held a bedside wedding ceremony June 19, 2013, and the participant died the following day.
Six days later, the Supreme Court held in Windsor that the U.S. Constitution requires federal law to recognize state-sanctioned same-sex marriages. The Court overturned section 3 of the Defense of Marriage Act (“DOMA”), which defined marriage under federal law to exclude same-sex couples. The same day, the Court decided Hollingsworth v. Perry, a procedural ruling that effectively reinstated same-sex marriage in California. The plaintiff obtained a marriage certificate and a judicial order declaring the couple’s marriage legally valid as of June 19, 2013.
Continue Reading Lawsuit by Surviving Same-Sex Spouse Raises Windsor Retroactivity Question
Earlier this week, the Supreme Court issued its opinion in M&G Polymers USA v. Tackett, addressing the question whether a collective bargaining agreement is presumed to provide vested retiree medical benefits. Unlike pension benefits, welfare benefits, such as retiree medical coverage, are not subject to statutory vesting rules under ERISA. Accordingly, whether an employer may reduce or eliminate retiree medical coverage depends on the promises the employer has made. These promises are typically analyzed under ordinary contract principles. However, a seminal 1986 decision in the Sixth Circuit, International Union, United Auto, Aerospace, & Agricultural Implement Workers of America v. Yard-Man, established an inference—perhaps even a presumption—that retiree medical benefits required by a collective bargaining agreement could never be taken away unless the bargaining agreement expressly provided otherwise. Last Monday, the Supreme Court unanimously overturned Yard-Man and its progeny.
Continue Reading Supreme Court Overturns Inference of Vesting of Bargained Retiree Benefits
What happens when a plan participant seeks benefits that he or she claims are set forth in a summary plan description (“SPD”) but are found nowhere in the plan itself? On one level, the Supreme Court in Cigna Corp v. Amara answered this question decisively: SPDs and other written disclosures about the plan do not constitute terms of the plan and cannot modify the plan’s terms. Accordingly, participants cannot claim under ERISA Section 502(a)(1)(B) that they are entitled to benefits under the plan based on statements that appear only in the SPD.
However, the Supreme Court also stated that a participant could obtain “appropriate equitable relief” under ERISA Section 502(a)(3) for statutory disclosure violations. The Supreme Court identified three possible equitable remedies: reformation, estoppel, and surcharge. Although the Supreme Court made clear that the traditional requirements in equity for obtaining any such relief must be satisfied, it left to the district court the task of determining when such remedies are appropriate.
Continue Reading Amara Decision Affirms Broad Equitable Remedy for Inaccurate SPD
In the wake of investment losses from the 2008 market downturn, many fiduciaries of employee benefit plans faced lawsuits brought by plan participants. Most cases involved defined contribution plans, in which participants sought to recover investment losses that had directly reduced their individual benefits. In contrast, fewer cases were brought against fiduciaries of defined benefit plans, largely because plan sponsors bear the investment risk in the defined benefit context–which means investment losses do not directly affect participants’ individual benefits. Courts have generally held that participants lack standing to sue defined benefit plan fiduciaries for investment losses–until now.
Continue Reading District Court Opens Door to Suits by Defined Benefit Plan Participants
Yesterday two federal courts of appeal reached opposite conclusions on the question whether individuals in 34 states are eligible for federal subsidies when they purchase health insurance coverage. Depending on how this issue is resolved, it could have a significant impact on the future of the Affordable Care Act, including the employer mandate scheduled to take effect in 2015.
Continue Reading Key Component of Affordable Care Act Might Be Invalid
Yesterday, the Supreme Court issued its much anticipated decision in the stock-drop case, Fifth Third Bancorp v. Dudenhoeffer. The Court vacated the lower court decision that was adverse to the employer, Fifth Third Bancorp, and remanded the case to the lower courts for further proceedings.
Fiduciaries of employee stock ownership plans (ESOPs) had hoped that this decision would clarify their responsibilities for administering an employer stock fund. Although the decision leaves many questions unanswered, it does provide useful guidance for fiduciaries administering an employer stock fund in an ESOP:
Continue Reading Stock-Drop Decision Helpful to ESOP Fiduciaries
A recent Ninth Circuit decision, Gabriel v. Alaska Elec. Pension Fund, offers useful insight for deciding how to fix a pension overpayment.
Virtually every employer that administers a pension plan has experienced (or will experience) discovering a calculation error after incorrect payments have been made for several years–resulting in thousands of dollars of overpayments. Fixing these overpayments is often difficult. On the one hand, plan fiduciaries have an obligation to stop overpayments and restore losses from excess payments. IRS guidance instructs plan administrators to recover overpayments from the affected participants. On the other hand, participants who have received overpayments inevitably claim that they have relied on the incorrect benefit and that correcting the error would result in undue harm to them. The affected participants often recognize that an incorrect benefit cannot be paid by the plan, but they argue that the cost of the correction should be borne by the administrator who made the error, rather than by the affected participant.
Since the Supreme Court’s 2011 decision in Cigna Corp. v. Amara (and even before that decision), many participants who received overpayments have alleged that an equitable remedy like “reformation,” “equitable estoppel,” or “surcharge” entitles them to keep overpayments.Continue Reading Judges Disagree on Remedies for Pension Mistake
Seems like we’ve written this before, but this time we (actually a federal district court) really means it: the court in Lee v. Verizon granted last Friday Verizon’s motion to dismiss a class action lawsuit challenging its transfer in late 2012 of $7.5 billion of pension liabilities to Prudential (…
Continue Reading Verizon Prevails (Again) on Motion to Dismiss Challenge to $7.5 Billion Pension Settlement
