The Sixth Circuit joined several other circuits in holding that a participant need not have actually incurred a financial loss in order to have standing to assert an ERISA claim for benefits under Section 502(a)(1)(B). Here, the plan participant arranged an air ambulance for his son in a non-emergent situation, but the plan refused to pay the bill on the ground that the service had not been pre-certified. The Court explained that even though the ambulance service had not directly billed the plan participant, the participant’s allegation that the plan breached its promise to pay all medical transportation expenses constituted an injury-in-fact sufficient to confer standing. The case is Springer v. Cleveland Clinic Employee Health Plan Total Care, No. 17-cv-4181, 2018 WL 3849376 (6th Cir. Aug. 14, 2018).
The Ninth Circuit recently held that ERISA does not preempt a Nevada state law that curtailed the ability of multiemployer plans to recover unpaid employer contributions. Under Nevada law SB 223, general contractors can be held vicariously liable for the labor debts of their subcontractors, including contributions owed by subcontractors pursuant to a collective bargaining agreement, provided that they receive certain notices. The state law also provides for a one-year statute of limitations. The Ninth Circuit explained that SB 223 was enacted because general contractors too often found themselves liable for the unpaid labor debts of their subcontractors.
The case reached the Ninth Circuit following entry of a declaratory judgment by the district court in favor of a multiemployer plan, finding that SB 223 was preempted by ERISA’s comprehensive regulatory framework. The Ninth Circuit reversed and explained that ERISA only provides a cause of action for delinquent contributions against the delinquent contributing employer, and that the right to recover unpaid contributions from general contractors was a result of Nevada’s vicarious liability law. Therefore, SB 223 trimmed only rights available under state law and not those guaranteed by ERISA. Additionally, the Ninth Circuit observed that SB 223 applied equally to any individual or entity seeking to recover labor debts from a general contractor, which foreclosed the argument that the law impermissibly targeted ERISA plans. The case is Bd. of Trustees of Glazing Health & Welfare Tr. v. Chambers, No. 16-cv-15588, 2018 WL 4200961 (9th Cir. Sept. 4, 2018).
In this episode of the Proskauer Benefits Brief, partner Myron D. Rumeld and associate Joseph Clark discuss participant-directed defined contribution (DC) plans and the lawsuits against the fiduciaries and service providers which are responsible for administering them. We will examine the best practices that can achieve favorable results for plan participants and the practices that can avert litigation or enable plan fiduciaries to effectively defend themselves if there is litigation. With the proliferation of DC lawsuits in recent years, be sure to tune in for this very important issue impacting plan sponsors and fiduciaries.
The Fifth Circuit agreed that a participant in Idearc’s 401(k) plan failed to plausibly plead that the plan fiduciary’s failure to act on publicly available information about Idearc amounted to a breach of fiduciary duty in connection with making Idearc stock available as an investment option in the plan. The decision was guided by an earlier Supreme Court decision in which the Court ruled that allegations that a fiduciary should have recognized from publicly available information alone that the market was overvaluing or undervaluing the stock are implausible as a general rule, at least in the absence of “special circumstances.” The Fifth Circuit first rejected the participant’s argument that where, as here, an imprudence claim was based on publicly available information, he need not prove “special circumstances” if the underlying allegations are that the stock was too risky as opposed to artificially inflated. The Fifth Circuit also disagreed with the participant’s assertion that defendants’ alleged fraud constituted a “special circumstance,” because the alleged fraud was “by definition not public information” and the participant did not allege how the alleged fraud would affect the stock’s market price in light of all public information. Second, the Fifth Circuit concluded that, even if defendants acted imprudently by failing to consider alternatives to continuing to invest in Idearc stock, Kopp failed to allege facts supporting the conclusion that defendants would have acted differently had they engaged in proper monitoring of the stock, and that an alternative course of action could have prevented the plan’s losses. Lastly, the Fifth Circuit declined to infer that defendants acted with inappropriate motivations by maintaining the stock fund as an investment option because they stood to gain financially from Idearc’s success. In so ruling, the Court found that a potential conflict does not equate to a plausible disloyalty claim, and that Kopp’s allegations at most showed that defendants acted to protect the value of Idearc stock, which was consistent with protecting the plan. The case is Kopp v. Klein, 2018 WL 3149151 (5th Cir. June 27, 2018).
In this episode of the Proskauer Benefits Brief, Paul Hamburger, co-chair of Proskauer’s Employee Benefits & Executive Compensation Group, and partner Robert Projansky discuss ten basic steps for how to manage qualified domestic relations orders (QDROs). A QDRO is a judgment, decree or order for a retirement plan to pay child support, alimony or marital property rights to a spouse, former spouse, child or other dependent of a participant. Many of our clients and plan administrators spend a significant amount of time on QDROs. Tune in and listen to how we make it easier for them to handle QDRO issues and administration.
The Second Circuit determined that a district court erred when it denied an attorney fee award to an ERISA plaintiff who had sought benefits from a plan. In so ruling, the Second Circuit first concluded the district court incorrectly determined that the plaintiff had not achieved “some success”—a threshold requirement for an ERISA fee award—because “some success” was achieved by getting the district court to vacate its earlier decision based on an intervening Second Circuit decision. The underlying issue pertained to the appropriate standard of review where a plan allegedly did not have claims procedures that complied with the DOL regulations. The Second Circuit next determined that the district court’s ruling failed to adequately apply the five-factor test used to determine the propriety of a fee award. Those factors include: (1) the offending party’s culpability or bad faith, (2) the offending party’s ability to satisfy an award, (3) whether an award would deter similarly conduct, (4) the merits of the parties’ positions, and (5) whether the action conferred a common benefit on other participants. The Second Circuit explained that the district court relied too heavily on its conclusion that defendants demonstrated no bad faith, neglected to consider plaintiff’s success on the merits, and failed to assess the extent of defendants’ culpability or their ability to pay an award. The Second Circuit thus vacated the district court’s decision and remanded for further consideration. The case is Tedesco v. I.B.E.W. Local 1249 Ins. Fund, No. 17-cv-3404, 2018 WL 3323640 (2d Cir. July 6, 2018).
The Ninth Circuit held that employees’ agreements to arbitrate all claims the employees may have did not extend to claims brought on behalf of two ERISA plans under ERISA § 502(a)(2). In so ruling, the Court explained that the employees could not agree to arbitrate claims on behalf of the plans in individual employment contracts because those employees cannot waive the plans’ rights. The Court also rejected an argument that the employees were, as a practical matter, seeking individual relief for their own plan accounts because relief flows to the plans as a whole from a winning fiduciary breach claim, even when the plan is a defined contribution plan. The case is Munro v. Univ. of S. California, No. 17-55550, 2018 WL 3542996 (9th Cir. July 24, 2018).
As we reported here, record-keepers for large 401(k) plans have thus far been successful in defending ERISA fiduciary-breach litigation over investment advice powered by Financial Engines. These lawsuits generally claim that fees collected by record-keepers for investment advice were unreasonably high because the fees exceeded the amount actually paid to Financial Engines. Plaintiffs in Chendes v. Xerox HR Solutions, LLC were given a second chance to plead their claims, this time alleging that the defendant record-keeper was a fiduciary because it “used its influence” as the plan’s record-keeper to force the plan sponsor to engage Financial Engines—primarily by refusing to use any other investment adviser—and therefore exercised de facto control over the plan’s retention of Financial Engines. The court rejected the argument that constraining the plan’s service provider choices amounted to de facto control since the plan had other alternatives to choose from (such as not using an investment adviser or changing record-keepers) and dismissed the claim without leave to amend, ending the case at the district court. The case is Chendes v. Xerox HR Solutions, LLC., Case No. 2:16-cv-1398, ECF No. 63 (E.D. Mich., June 25, 2018).
In this episode of the Proskauer Benefits Brief, Paul Hamburger, co-chair of Proskauer’s Employee Benefits & Executive Compensation Group, and associate Katrina McCann discuss how to fix retirement plan overpayments, based on (1) the type of plan (i.e., defined contribution or defined benefit plan), (2) whether the overpayment was with respect to a lump sum or ongoing payments, (3) the type of overpayment (whether it was to the wrong person or paid at the wrong time), and (4) who caused the overpayment. They discuss the requirements, the decisions involved, and certain ERISA and taxation issues that can arise when addressing these overpayments.
After nearly a decade in the making, the Department of Labor’s fiduciary rule appears to be officially dead. On June 21st, the U.S. Court of Appeals for the Fifth Circuit issued its mandate that finalized its earlier decision vacating the rule—discussed here. Along with the regulation that expanded the definition of investment fiduciary, the mandate wipes out the Best Interest Contract and Principal Transaction exemptions. Recognizing that many fiduciaries have invested significant compliance resources in reliance on those exemptions, however, the Department of Labor has issued a “no enforcement” policy that continues prohibited transaction relief as if those exemptions were still available. The “no enforcement” policy applies for fiduciaries who “are working diligently and in good faith to comply with the [exemptions’] impartial conduct standards.” It is discussed here and will remain in effect until DOL issues new guidance. Meanwhile, the SEC published proposed conflict of interest rules for broker-dealers and investment advisers. The comment period for the SEC’s proposal runs to August 7, 2018—discussed here.