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Proskauer's ERISA Practice Center Blog

The View from Proskauer on Developments in the World of Employee Benefits, Executive Compensation & ERISA Litigation

Update on Lawsuits Challenging the U.S. Department of Labor’s Fiduciary Rule

Posted in Fiduciary Rules

As we previously reported, there are five pending lawsuits challenging the U.S. Department of Labor’s new fiduciary rule.  Our Client Alert on the new rule outlines the significance of the rule and the implications of the expanded definition of “fiduciary” for investment advisors and other related service providers.

First, with respect to the litigation pending in the U.S. District Court for the District of Columbia, captioned The National Association for Fixed Annuities v. Thomas E. Perez et al., Case No. 16-cv-1035, briefing is now complete on the NAFA’s motion for a preliminary injunction and for summary judgment, as well as the DOL’s cross-motion for summary judgment.  We published a summary of the parties’ arguments.  Oral argument on the motions is currently scheduled for August 25, 2016.  AARP, the Public Investors Arbitration Bar Association, Better Markets, Inc., Consumer Federation of America, and Americans for Financial Reform have filed amicus curie briefs in support of the DOL and the new rule.

Second, the three lawsuits filed in the U.S. District Court for the Northern District of Texas were consolidated under the caption Chamber of Commerce of the U.S., et al., v. Perez, et al., Case No. 16-cv-1476-M.  The Chamber of Commerce and its co-plaintiffs filed their motion for summary judgment on July 18, 2016, arguing that the new rule unlawfully creates a private right of action, that the rule violates the First Amendment as applied to truthful commercial speech, and that the DOL exceeded its statutory authority and acted arbitrarily and capriciously in imposing fiduciary obligations on non-fiduciary speech and disfavoring annuities.  They also argued that the rulemaking process was inadequate.  It is anticipated that the DOL will file a combined opposition and cross-motion for summary judgment on August 19, 2016.  Briefing on the motions is currently scheduled to conclude by October 7, 2016, and oral argument on the motions is currently scheduled for November 17, 2016.

Third, in the lawsuit filed by Market Synergy in the U.S. District Court for the District of Kansas, captioned Market Synergy Group, Inc., v. U.S. Dept. of Labor, et al., Case No. 16-cv-4083, Market Synergy filed a motion for a preliminary injunction postponing implementation of the new rule, arguing that that the DOL failed to adequately consider the impact of its rule on the sale of fixed indexed annuities, and did not provide adequate notice of its decision to allow the sellers of fixed indexed annuities to comply with the rule’s best interest contract exemption.  The DOL opposed the motion on the ground that Market Synergy failed to show a likelihood of success on the merits given that the administrative process was proper and thorough, and the DOL acted well within its statutory authority.  A hearing on the motion for preliminary injunction is scheduled for September 21, 2016.  AARP, the Public Investors Arbitration Bar Association, Better Markets, Inc., Consumer Federation of America, and Americans for Financial Reform have sought leave to file amicus curie briefs in supports of the DOL.  Market Synergy filed an opposition to the motions for leave to file amicus briefs and the Court has not yet ruled on the issue.

Challenge to Pension Fund Investment Decision Time Barred

Posted in Statute of Limitations

A federal district court in California held that a complaint filed by members of the International Union of Operating Engineers that challenged pension plan trustees’ decision to make certain investments was filed five days too late and thus barred by ERISA’s six-year statute of limitations.  In so holding, the court ruled that the limitations period commenced at the time the fund entered into the investment management agreement, not the time when the plan assets were actually invested.  The court explained that the action of making the payments into the investment were ministerial acts, as the fund had already been legally obligated to make them.  The case is Slack v. Burns, 13-CV-5001, 2016 BL 233292 (N.D. Cal. July 20, 2016).

ACA Reporting Update – 2016 Draft Forms & Instructions Released

Posted in Affordable Care Act

Since our last ACA Reporting Update, the extended deadlines to distribute Forms 1095-B and 1095-C to covered individuals and employees and to file the forms with the IRS have passed.  The IRS has stated, however, that late forms can still be submitted via electronic filing and the forms that received an error message should be corrected.  By many accounts, the first ACA reporting season presented numerous challenges.  From collecting large amounts of data to compiling the forms, to working with service providers that faced their own unique challenges, to facing form rejections and error notifications from an inadequate IRS electronic filing system, employers and coverage providers faced obstacles nearly every step of the way.  Nevertheless, most employers and coverage providers were able to get the forms filed and put the 2015 ACA reporting season behind them.  Continue Reading

Fidelity Prevails In ERISA Float Litigation

Posted in 401(k) Plans

The First Circuit joined the Eighth Circuit in finding that Fidelity’s practice of earning overnight “float” interest on the cash paid out to 401(k) participants redeeming shares in mutual funds did not violate ERISA’s duty of loyalty or prohibition on self-dealing.  In so holding, the Court observed that under the terms of the trust agreements between Fidelity and the plan sponsors of the 401(k) plans, Fidelity acted as an intermediary by:  (i) opening and maintaining trust accounts for each plan and participant; (ii) accepting contributions from the participant and employer; (iii) investing those contributions in mutual funds; and (iv) when requested by a participant, withdrawing and distributing participant shares in the mutual fund.

Plaintiffs challenged the final step in Fidelity’s intermediary responsibilities because of the float interest earned between withdrawal and redemption. The float was earned in the following manner:

  • Upon request by a participant to withdraw from the plan, their mutual fund shares were redeemed by the mutual fund paying the market value of the shares using an end-of-trading day value.
  • Once valued, the participant’s cash was transferred into a “redemption” bank account owned and registered to Fidelity and then transferred into a Fidelity owned interest-bearing account.
  • The next day the value of the participant’s mutual fund shares was transferred back to the redemption account and then electronically disbursed to the participant.  (A similar process took place for participants receiving paper checks except that interest was earned until the participant cashed the check.)
  • The interest earned, the Float, was then deposited back into the mutual fund.

Plaintiffs did not claim a personal stake in the float; indeed the Court noted that plaintiffs were not “short so much as a penny” and had “no direct stake in the plan assets.” Rather, plaintiffs alleged that by returning the float, which they claim was a plan asset, to the mutual fund and not to the 401(k) plan, Fidelity breached its ERISA fiduciary duties. The First Circuit applied ordinary notions of property rights and dismissed plaintiffs’ claims.  The Court held that because the cash payout from the redemption does not go to, and was never intended to, the plan it did not become an asset of the plan upon the exchange. The Court also observed that the intermediary actions taken by Fidelity were consistent with ordinary business practices and, more importantly, with the terms of the trust agreement.

The case is In re Fidelity ERISA Float Litig.,No. 15-1445, 2016 U.S. App. LEXIS 12874 (1st Cir. July 13, 2016).

District Court Finds Forum Selection Clause Unenforceable in ERISA Action

Posted in ERISA, Venue

A federal district court in Illinois ruled that a plan’s forum selection was unenforceable because it conflicts with ERISA’s public policy of providing plaintiffs “ready access to the Federal courts.”

Darlene Harris purchased a life insurance policy for her husband and paid the required policy premiums until his death.  When Harris sought the policy benefits, the administrator denied her claim and then she commenced a lawsuit in the Northern District of Illinois.  Defendants moved to transfer the case to the Northern District of Texas on the ground that the plan’s forum selection clause provided that the “only proper venue for any person to bring a suit against the Plan or to recover Benefits shall be in federal court in Harris County, Texas.”

ERISA provides that an action “may be brought in the district where the plan is administered, where the breach took place, or where a defendant resides or may be found.” 29 U.S.C. § 1132(e)(2). Elsewhere, ERISA uses mandatory language when it takes away the parties’ freedom to contract for plan provisions.  In the court’s view, even though there was no textual bar against enforcing plan venue provisions, this provision was susceptible to multiple interpretations and determined that the word “may,” as used in this context, could be read as either allowing a plaintiff to file suit in multiple districts or “as providing a right to ERISA plaintiffs to file their action in the most suitable of these locations.” The court thus looked to the policies underlying ERISA and identified ERISA’s public policy of providing plaintiffs “ready access to the Federal courts” as a guide for determining the enforceability of the forum section clause.  Although the court admitted that it was adopting the minority view, the court held that, in its view, the most persuasive interpretation protects plaintiffs’ option of bringing suit in a convenient forum and determined that the forum selection clause was unenforceable.

In so ruling, the court observed that the Sixth and Eleventh Circuit appeared to have conflicting views of the meaning of “ready access to the Federal courts.”  As the only circuit to date to rule on forum selection clauses for ERISA plans, the Sixth Circuit in Smith v. AEGON Cos. Pension Plan, 769 F.3d 922, 931-32 (6th Cir. 2014), interpreted “ready access” as being satisfied as long as the plaintiff was “provide[d] [a] venue in a federal court.” The Eleventh Circuit in Gulf Life Ins. Co. v. Arnold, 809 F.2d 1520, 1525 (11th Cir. 1987), however, opined in dictum that “ready access to the Federal courts” protects “plaintiffs[’] option of bringing suit in a convenient forum without forcing them to bear the heavy burden of showing that litigating elsewhere would literally foreclose any access to any federal court.”

Having determined the forum selection clause was unenforceable, the court applied a forum non conveniens analysis and found the most appropriate venue was the Southern District of Illinois because that is where Harris resided and where the alleged breach of the policy occurred.

The case is Harris v. BP Corp. N. Am. Inc., No. 15 C 10299, 2016 BL 221805 (N.D. Ill. July 08, 2016).

Pension Consultant Found Not to be an ERISA Fiduciary

Posted in Fiduciary

The Tenth Circuit held that a pension plan consultant, who misstated the amount of monthly pension payments that a pension plan participant would receive in retirement, was not a fiduciary under ERISA.

Plaintiffs Trent and Wendy Lebahn, who were participants in the National Farmers Union Uniform Pension Plan, claimed that the Plan, its Pension Committee and consultant breached their fiduciary duties when the consultant told them that if Mr. Lebahn retired soon he would be entitled to $8,444.18 per month when in fact it turned out that this amount was overstated by nearly $5,000 per month.  Because the overstated amount was paid for several months, the plan demanded that Mr. Lebahn return over $43,000 in overpayments.

The Tenth Circuit affirmed the dismissal of the complaint because the Lebahns failed to adequately allege that the consultant had fiduciary status.  The Court, relying on the New Oxford American Dictionary, explained that “fiduciary status requires authority or responsibility that is discretionary, which entails ‘the freedom to decide what should be done in a particular situation’” and that conducting a routine computation, as required by one’s job, does not require discretion.  The Court also relied on the Department of Labor’s regulations, 29 C.F.R. §§ 2509.75-8 and 2509.75-5, which explain that “a person who performs administrative functions, such as calculating benefits, does not automatically have discretionary authority.”  Because the Court concluded that the consultant was not a plan fiduciary, it determined that it need not decide whether her fiduciary status could support liability of the other defendants.

The case is Lebahn v. Nat’l Farmers Union Unif. Pension Plan, et al., No. 15-3201, 2016 BL 221313 (10th Cir. July 11, 2016).


Update on Lawsuits Challenging the U.S. Department of Labor’s Fiduciary Rule

Posted in Fiduciary Rules

As we previously reported here, there have been five lawsuits challenging the U.S. Department of Labor’s new fiduciary rule.  (Our Client Alert on the new rule is available here.)

On July 8, 2016, the U.S. Department of Labor (DOL) filed its first formal response to these lawsuits in The National Association for Fixed Annuities v. Thomas E. Perez et al., Case No. 16-cv-1035 (D.D.C.).  The DOL’s response comes in the form of an opposition to plaintiffs’ motion for a preliminary injunction and summary judgment and a cross-motion for summary judgment.  The DOL argued that the fiduciary rule is entitled to Chevron deference – which requires federal courts to give deference to agency interpretations unless they are shown to be unreasonable – because the rule is necessary to protect millions of retirees in light of the shift from professionally managed defined benefit pension plans to participant-directed defined contribution plans.  The DOL also disputed the accusation that the administrative process of issuing the rule was improper.  Among other things, the DOL pointed out that it held an open rulemaking process spanning almost six years, which included the receipt of consideration of more than 3,000 comment letters, held public hearings, and conducted more than three dozen meetings with interested parties, and then it “provided a reasoned explanation for its decision.”  A hearing on the motions has been scheduled for August 25, 2016.

Three of the other lawsuits were filed in the U.S. District Court for the Northern District of Texas and have been consolidated under Chamber of Commerce of the U.S., et al., v. Perez, et al., Case No. 16-cv-1476-M.  The parties are currently briefing cross-motions for summary judgment with opening briefs due July 18.  A hearing on cross-motions for summary judgment will be heard on November 17, 2016.

The fifth case is pending in the District of Kansas and is captioned Market Synergy Group, Inc., v U.S. Dept. of Labor, et al., Case No. 16-cv-4083.  The DOL’s brief is currently due July 22, and a hearing on the motion for preliminary injunction is scheduled for September 21, 2016.

Marketplace Subsidy Notices – What Employers Should Know

Posted in ACA, Affordable Care Act

As promised by the Centers for Medicare & Medicaid Services (CMS) in late-2015, the Federally-Facilitated Marketplaces (FFMs) have started sending notices informing employers that employees have enrolled in a FFM and were determined eligible for premium subsidies. Because the employer shared responsibility penalties set forth in Section 4980H of the Internal Revenue Code (the “Code”) could be triggered when at least one full-time employee obtains a premium subsidy on the Marketplace, an employer receiving one of these notices should understandably be concerned about the possibility of penalties.  Nevertheless, these notices do not guarantee that a penalty will be assessed.  Here’s what employers should know: Continue Reading

Senator Warren Leads Coalition to Expand Scope of Limitations on Executive Compensation Tax Deductions

Posted in Executive Compensation

As we have previously reported (see here and here), bills to expand the scope of Section 162(m) and/or to narrow or eliminate the exceptions under Section 162(m) have been proposed in recent years, but have not become law.

Recently, a new coalition named “Take On Wall Street” that is comprised of lawmakers (including Senator Elizabeth Warren (D-MA)), union leaders, civil rights groups, and other community groups has announced plans to pursue five initiatives, one of which is to “end [the] tax exemption for huge CEO bonuses.”

Please see our full post on our Tax Talks blog discussing the legislation introduced by both the House and Senate that would amend Section 162(m) of the Internal Revenue Code.

Lawsuits Filed Challenging The USDOL’s Final Fiduciary Rules

Posted in Fiduciary Rules

On April 6, 2016, the U.S. Department of Labor released its Final Rule addressing when a person providing services to an employee benefit plan or individual retirement account (IRA) is considered to be providing investment advice that is subject to ERISA’s fiduciary standard.  As discussed in our Client Alert, available here, the rule expanded the types of communications that are subject to the fiduciary standard, extended fiduciary obligations to IRAs, and added new and revised prohibited transaction exemptions, one of which is the Best Interest Contract Exemption. Continue Reading