ERISA Litigation

On March 19, the Eighth Circuit addressed a long-running case involving alleged fiduciary duty breaches in the administration of 401(k) plans. (Tussey v. ABB, Inc.)  Although the Eighth Circuit emphasized that courts owe deference to choices entrusted by plan documents to fiduciary discretion – and reversed one finding of liability partly on that basis – the decision affirmed a finding that plan fiduciaries in this case are liable for $13.4 million for failing to monitor and assess the reasonableness of the plan recordkeeper’s compensation from revenue sharing.

Tussey was among a wave of plan expense cases filed in 2006; a 16-day trial occurred in 2010.  Two years later, the trial court ruled that:

  • The plan’s fiduciaries breached their responsibilities with respect to 401(k) plan fees paid to the plan’s recordkeeper, Fidelity, by (i) failing to monitor the level of fees (particularly fees from revenue sharing); (ii) failing to negotiate rebates from Fidelity or the plan’s investment funds; and (iii) failing to select the least expensive share class for certain funds.  The court noted that, as a result of the compensation that Fidelity received from the 401(k) plan (mostly through revenue sharing from mutual funds), Fidelity was able to provide discounts to ABB for other services, such as health plan administration;
  • The fiduciaries also imprudently replaced a Vanguard mutual fund with Fidelity-managed target date funds; and
  • Fidelity improperly failed to allocate to the plans the interest earned by brief deposits of contributions and disbursements going to or from investment options (“float”).

The trial court assessed the fiduciaries’ liability to the plans at more than $35 million, ruled that Fidelity owned $1.7 million related to float, and held both the fiduciaries and Fidelity liable for more than $13 million in attorneys’ fees and costs.

The appellate court reversed the trial court in part, remanding the target date fund ruling for reconsideration and exonerating Fidelity with regard to float. But the Eighth Circuit affirmed the $13.4 million judgment against the fiduciaries for failing to ensure that the recordkeeper’s revenue-sharing income was not unreasonable and not subsidizing the provision of other Fidelity services to ABB.
Continue Reading Appellate Court Affirms Fiduciaries’ Liability for Failure to Monitor Revenue Sharing Paid to Recordkeeper

On Monday, the Supreme Court unanimously ruled that a reasonable deadline for filing a lawsuit for benefits was enforceable.  (Heimeshoff v. Hartford Life & Accident Insurance Co.) The decision is important because it confirms that the clock may start before a claim is filed under the plan’s mandatory administrative process.  Plan sponsors who have not already done so should review the limitations periods under their plans and consider revising or stating more clearly when the limitations clock starts.
Continue Reading Supreme Court Confirms Plan Sponsor’s Right to Set Deadline for Filing Lawsuits

In an amicus brief filed last week, the ERISA Industry Committee and Chamber of Commerce of the United States of America stated that a court should not rewrite a plan document, or penalize the administrator who follows the plan document, merely because a summary plan description does not disclose wear-away…
Continue Reading Plan Documents Should Not Be Rewritten When an SPD Does Not Disclose Wear-Away, Industry Groups Say

A federal appeals court recently ruled that a private equity fund might be responsible for the unfunded pension liabilities of its bankrupt portfolio company.  This ruling could have broader repercussions for private investment funds and the companies they own.  If the companies are considered to be related employers under the rules that govern employee benefits, they might acquire other unexpected obligations, such as the obligation to provide health care to their employees.
Continue Reading Private Investment Funds Face Potential Liability for Portfolio Companies’ Employee Benefits

More than a month after the Supreme Court struck down section 3 of the Defense of Marriage Act (“DOMA”) in United States v. Windsor, employers are still waiting for the federal government to answer fundamental questions about the rights of same-sex spouses in the post-DOMA world.  In the meantime, however, lower federal courts have begun to come to grips with these questions in decisions interpreting and applying the Supreme Court’s Windsor decision.

A significant issue for employers is whether they should determine a couple’s marital status based on the law of the state where the marriage was celebrated, even if the couple now resides in a state that does not recognize same-sex marriage.  A number of states have “mini-DOMA” statutes declaring that the state will not recognize same-sex marriages, including marriages performed in other jurisdictions.

Although the Supreme Court held in Windsor that the federal government cannot refuse to recognize a same-sex marriage that is recognized under state law, the Supreme Court did not address section 2 of DOMA, which provides that a state is not required to recognize a same-sex marriage performed in a different state.  As a result, Windsor leaves open the possibility that a same-sex couple’s marriage might be valid in some states and not in others.  A rule that requires plan sponsors to look to a couple’s state of residence rather than to the state of celebration to determine the validity of their marriage would create significant administrative burdens.
Continue Reading Federal Courts Decide Rights of Same-Sex Spouses After DOMA

Earlier today, a federal district court granted Verizon’s motion to dismiss a class action lawsuit challenging its recent transfer of $7.5 billion of pension liabilities to Prudential (Lee v. Verizon, N.D. Tex.).  The court concluded that plaintiffs had failed to state a claim that the transaction violated ERISA’s…
Continue Reading Verizon Prevails on Motion To Dismiss Challenge to $7.5 Billion Pension Settlement

We recently observed that ERISA gives employers considerable leeway to design plan rules that fill in gaps in ERISA.  A recent Second Circuit case, Thurber v. Aetna Life Ins. Co., illustrates two important ways that plan drafting can meaningfully affect the outcome of litigation involving the plan:

  • First, a plan may specify the standard of review that a court must apply in a dispute.
  • Second, plan language can affect a plan’s ability to recover overpayments.

The case illustrates that good language that fills in gaps can save a lot of money.  In contrast, not filling in gaps — or having language that is not clear — can prove costly.
Continue Reading Second Circuit Reinforces Plan Drafting Opportunity for Employers

The Seventh Circuit’s recent decision in White v. Marshall & Ilsley Corp. awarded another early-round victory to employers in ERISA stock-drop litigation.

The plaintiffs in this case sought to recover losses in the M&I Bank 401(k) Plan’s stock fund that were attributable to a 54% decline in the market price of M&I stock that occurred during the financial crisis of 2008 and 2009.  The district court granted M&I’s motion to dismiss the plaintiffs’ misrepresentation and imprudent investment claims, but the plaintiffs appealed only the dismissal of their imprudent investment claims.

The Seventh Circuit affirmed the district court’s judgment.  Consistent with rulings by the Second, Third, and Eleventh Circuit (and contrary to a ruling by the Sixth Circuit), the Court ruled that the presumption of prudence adopted by the Third Circuit in Moench v. Robertson, 62 F.3d 553 (3d Cir. 1995) applied at the pleading stage as a substantive standard of conduct and that the presumption was not an evidentiary standard to be applied at the summary judgment stage, as urged by the plaintiffs and their amicus, the Secretary of Labor.
Continue Reading Employers Continue to Prevail in Stock Drop Litigation

In its recent decision in U.S. Airways v. McCutchen, all nine justices of the Supreme Court agreed that equitable principles do not override the clear terms of an ERISA plan.  Although a majority of the Court went on to find that the plan at issue was ambiguous, the decision makes clear that plan documents—when clear—may fill in gaps in areas that ERISA does not prescribe.  Employers may wish to address several of these areas in plan documents.  The McCutchen case shows that identifying these areas and drafting clear plan language can help achieve the plan sponsor’s objectives.
Continue Reading Supreme Court’s McCutchen Decision Highlights Plan Drafting Opportunity

Employees and retirees frequently receive information relating to benefits – eligibility to participate, coverage for certain medical treatment, enrollment status, anticipated benefits at retirement, and so forth.  Sometimes that information appears in formal documents published by named plan fiduciaries.  Other times it comes in response to one-off inquiries made to persons working in the HR department or employed by a third-party administrator.  A recent Fifth Circuit decision highlights the risk posed by erroneous information:  fiduciaries’ possible liability for extra-contractual relief that will make a misinformed plaintiff “whole.”
Continue Reading Providing Erroneous Information to Participants May Expose Plan Fiduciaries to Liability for “Make Whole” Relief