Last week, Judge Reed O’Connor of the U.S. District Court for the Northern District of Texas, issued the first-of-its-kind ruling on the merits pertaining to environmental, social, and corporate governance (“ESG”) investing in ERISA-covered retirement plans. In his 70-page Opinion, Judge O’Connor concluded that the plan fiduciaries of American Airlines’ (the “Plan Sponsor’s”) 401(k) plans
District Court Dismisses Class Action Seeking Wilderness Therapy Benefits
A federal district court rebuffed putative class claims alleging that Cigna Health and Life Insurance Co. and two of the plans it administered violated the Mental Health Parity and Addiction Equity Act of 2008 (“MHPAEA”) by denying coverage for wilderness therapy. S.F. v. CIGNA Health & Life Ins. Co., 2024 WL 1912359 (D. Utah
Massachusetts District Court Grants Motion to Dismiss 401(k) Fiduciary Breach and Prohibited Transaction Claims
A federal district court in Massachusetts dismissed ERISA fiduciary breach and prohibited transaction claims against 401(k) plan fiduciaries, ruling that the prohibited transaction claims were time-barred and the fiduciary breach claims—once limited by a settlement agreement in an earlier class action against MassMutual involving similar allegations (“Gordan”)—failed to plausibly state a claim. The
Wisconsin Federal District Court Issues Five Rulings on Motions to Dismiss 401(k) Investment and Fee Cases – Is There a Way to Reconcile Them?
Defense counsel frequently lament the difficulties of defending 401(k) investment and recordkeeping fee litigation when different judges render conflicting rulings on motions to dismiss seemingly indistinguishable complaints. Even when the judges purport to apply the same legal standards, the outcomes can differ. For that reason, we thought it would be interesting to track the decisions
Putative ESOP Class Action Dismissed for Failure to Exhaust Administrative Remedies
The decision in Bolton v. Inland Fresh Seafood Corp. of America Inc., No. 22-cv-4602 (N.D. Ga. Dec. 5, 2023)should serve as a reminder to all ERISA practitioners that, if litigating in courts of the Eleventh Circuit, participants must exhaust a plan’s claims procedures before commencing a lawsuit—regardless of the type of ERISA claim asserted.
Second Circuit Establishes Practical Pleading Requirement for Prohibited Transaction Claims Under ERISA Section 406(a)(1)(C)
The Second Circuit recently held that in order to state a claim for a prohibited transaction pursuant to ERISA section 406(a)(1)(C), it is not enough to allege that a fiduciary caused the plan to compensate a service provider for its services. Instead, “the complaint must plausibly allege that the services were unnecessary or involved unreasonable compensation.” Cunningham v. Cornell Univ., 2023 WL 7504142 (2d Cir. Nov. 14, 2023). Separately, the Second Circuit affirmed summary judgment for the defendants in connection with the plaintiffs’ fiduciary breach claims that were premised on allegations of excessive recordkeeping fees, underperforming investment funds, and the defendants’ failure to transition to lower-cost share classes of certain mutual funds.
District Court Enforces Arbitration Clause in ERISA Plan Document
A federal district court judge in the Eastern District of Kentucky has enforced an ESOP’s arbitration clause, sending P.L. Marketing Inc. employees’ breach of fiduciary duty claims on behalf of a putative class to individual arbitration. The case is Merrow et al. v. Horizon Bank et al., No. 2:22-cv-123, 2023 WL 7003231, at *1 (E.D. Ky. Oct. 24, 2023).
Plaintiffs, participants in P.L. Marketing, Inc.’s ESOP, sued the plan’s trustee, Horizon Bank, alleging that Horizon violated ERISA’s fiduciary duties and prohibited transaction rules by causing the ESOP to overpay for company stock. The ESOP plan document included a mandatory arbitration clause as well as a waiver of class arbitration. Defendants moved to dismiss the complaint, arguing in part that the district court lacked jurisdiction to hear the claims because they fell within the scope of the ESOP’s arbitration clause.
Ninth Circuit: Changes to a Services Agreement Require Consideration of Indirect Compensation
A recent Ninth Circuit decision has generated considerable controversy amongst employee benefits practitioners by holding that plan fiduciaries engaged in prohibited transactions when they amended the plan’s existing recordkeeping contract to add brokerage and investment advisory services. In so ruling, the Court remanded the case to the district court to consider whether the transactions fell within the exemption for reasonable service agreements and, independently, whether it was imprudent for plan fiduciaries not to consider third-party compensation earned by the plan’s recordkeeper. The case is Bugielski v. AT&T Services, Inc., 76 F. 4th 894 (9th Cir. 2023).
Participants in AT&T’s 401(k) plan sued the plan administrator and the plan’s investment committee, alleging that defendants engaged in prohibited transactions and breached their duty of prudence by failing to investigate and evaluate all compensation earned by the plan’s longtime recordkeeper. The claims apparently were prompted by amendments to AT&T’s contract with its recordkeeper, which gave plan participants access to the recordkeeper’s brokerage account platform and to investment advisory services through a third-party advisor. Under these arrangements, the recordkeeper received revenue-sharing fees from the mutual funds available to participants via the brokerage account platform; and, through its own agreement with the investment advisor, the recordkeeper received a portion of the fees that the investment advisor earned from managing participant accounts.
Sixth Circuit Concludes Lack of Proper Delegation Means Benefits Department Did Not Have Discretionary Authority to Decide Claims
A recent Sixth Circuit decision emphasizes the importance of maintaining correct benefit plan delegations to avoid tussles over the correct standard of review for benefit claims. In this case, the Sixth Circuit concluded that no deference was owed to a claim decision made by a company’s benefits department because the plan document neither named the benefits department as the entity with discretionary authority to decide claims nor permitted the benefits committee to delegate its discretionary authority to the benefits department. The case is Laake v. Benefits Committee, Western & Southern Financial Group Co. Flexible Benefits Plan et al., 68 F.4th 984 (6th Cir. 2023).
Seventh Circuit Affirms Discretion Over Who Gets Severance Benefits
A recent Seventh Circuit decision affirms the principle that an ERISA severance plan can reserve to the employer discretion over who is eligible for severance benefits. The case is Carlson v. Northrop Grumman Severance Plan, No. 22-1764, __ F.4th __, 2023 WL 3299703 (7th Cir. May 8, 2023).