fiduciary

The extent to which a participant in a tax-qualified defined benefit plan has standing to sue the plan’s fiduciaries for mismanagement of plan assets has long been unclear. The argument against standing is that the participant has not suffered any injury because the participant would receive the same benefit from the plan regardless of the outcome of the lawsuit.
Continue Reading Supreme Court Closes Door to Participant Challenges to Defined Benefit Plan Investments

Consider a situation in which a former employee alleges that he or she did not receive a COBRA election notice. That’s the notice that must be provided to group health plan participants when they lose coverage as a result of certain events, including termination of employment, and that gives the participants information regarding their rights and obligations to elect COBRA continuation coverage. If a court finds that the employer failed to provide the notice, the court could (1) allow the employee to retroactively elect coverage after the election period otherwise would have ended, (2) award statutory penalties of up to $110 per day to the employee, or (3) provide other relief to the employee. There is also an excise tax for COBRA failures, including failure to provide a COBRA election notice, of $100 per day per failure. An employer must report the excise tax on Form 8928, and the statute of limitations generally would not start running unless and until the employer does so.

To prevail at the summary judgment stage and avoid a trial, some courts hold that the plan administrator has the burden of proving that the election notice was properly sent to the employee. So, what evidence does the plan administrator need to establish that the notice was sent? According to a recent decision, a declaration of the employer’s normal business practices may not be enough to win a motion for summary judgment.Continue Reading Benefit Plan Record Retention – A Cautionary Tale from Louisiana

On August 20, 2019, the Ninth Circuit held in Dorman v. Charles Schwab Corp. that a 401(k) plan’s mandatory arbitration clause was enforceable in relation to a breach of fiduciary duty claim brought under ERISA § 502(a)(2).  No. 18-15281 (9th Cir. Aug. 20, 2019).  This is the first case in which the Ninth Circuit concluded that such fiduciary breach claims could be arbitrated.
Continue Reading Ninth Circuit Opens the Door to Arbitration in ERISA Fiduciary Breach Claims

On Wednesday, April 18th, the SEC introduced a much-anticipated package of proposed rules and formal guidance concerning the standards of conduct for financial professionals. The more than 1,000-page proposal, which emerged eight years after Congress required the agency to conduct a study on the topic, addresses whether investment advisers and…
Continue Reading SEC Proposal Dives Into Long-Standing Debate About the Duties of Investment Professionals

Our colleague Jason Levy recently published an article in The Actuary Magazine on the Department of Labor’s fiduciary conflict rule.  More than six years in the making, this rule represents perhaps the most significant regulation from the DOL during the Obama Administration.

The fiduciary conflict rule expands the definition of fiduciary to cover, with certain exceptions, all investment advice provided to a retirement plan (like a 401(k) plan, defined benefit pension plan, or an IRA), or to a participant or beneficiary in any of those retirement plans.  The rule imposes fiduciary status on a broad category of professionals, including many broker-dealers who previously had taken the position that they were not investment advice fiduciaries based on a DOL regulation that had been in place since 1975.

In contrast to the sweeping changes it imposes on investment advice professionals, the fiduciary conflict rule will have a far more modest effect on employers.  The rule is not intended to confer fiduciary status on sponsors of retirement plans.  Likewise, there had been concern under the proposed version of the rule that human resources and other employees who interact with participants might be considered fiduciaries when they discuss retirement plan investments with their co-workers.  However, the final version of the rule provides that, absent unusual circumstances, such employees would not be covered.

Nevertheless, the fiduciary conflict rule has important implications for employers that sponsor retirement plans.Continue Reading What Employers Need to Know About the Fiduciary Conflict Rule

As noted in our earlier blog post, the U.S. Supreme Court’s 2014 decision Fifth Third Bancorp v. Dudenhoeffer made clear that participants bringing stock-drop cases are subject to heightened pleading standards to help “divide the plausible sheep from the meritless goats.”

In its first substantive ruling in a post-…
Continue Reading Supreme Court Reiterates High Pleading Bar for Stock Drop Cases

For sponsors and fiduciaries of employee benefit plans, the Amara case has presented many interesting and important issues that have been discussed at length in this blog and elsewhere. However, the most recent chapter in this long-running dispute has not garnered nearly as much attention as either the Supreme Court or Second Circuit decisions that came before it. Nonetheless, this latest decision, Cigna Corporation v. Executive Risk Indemnity, raises a critical issue for plan sponsors and fiduciaries: what is and, perhaps more importantly, what is not, covered by fiduciary and other liability insurance policies.

The facts of the Executive Risk case are relatively straightforward. Cigna sought a declaratory judgment that it was entitled to coverage under its fiduciary liability policies for claims asserted in the Amara case. The insurers denied coverage, relying on a policy exclusion for “deliberately fraudulent or criminal acts or omissions.” The trial court ultimately applied the exclusion and denied coverage.

Given the considerable amount at stake, the decision is undoubtedly important to Cigna, Executive Risk, and the other insurers who were defendants in the case. However, other plan sponsors and fiduciaries would be wise to understand the significance of this decision as well: insurance coverage cases often turn on the language of the insurance policies in question and there generally is not “standard” policy language on many critical issues.Continue Reading ERISA Liability Insurance: Know What’s Covered . . . And What Isn’t

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

A recent Seventh Circuit case, Killian v. Concert Health Plan (Nov. 7, 2013), highlights two important principles for any plan sponsor or fiduciary:

  1. If a plan document or summary plan description leaves out information and says to call a phone number for details, plan fiduciaries can be responsible for call center representatives’ oral statements and omissions.
  2. A call center representative might have a responsibility to provide more information than a caller specifically requests, if the caller’s questions indicate that additional information would be important to the caller under the circumstances.

The Killian case involved unfortunate circumstances.  An employee was admitted to a hospital for emergency cancer surgery.  The insurance certificate for the employee’s health plan cautioned participants to call a phone number to confirm that their health provider was in-network.  The employee’s husband followed this suggestion and called the number.

The husband explained to the call center representative that his wife needed immediate treatment, and was seeking admission to St. Luke’s Hospital.  The representative could not find St. Luke’s Hospital in her database (possibly because St. Luke’s had changed its name to Rush several years earlier), but told the caller to “go ahead with whatever had to be done.”  The caller never asked whether the hospital’s services would be covered, and the representative did not address that question.  She told him to call back later.
Continue Reading Fiduciaries May Be Responsible for Call Center Statements to Fill in Gaps in SPD