Employee Benefits Law Report

Tag Archives: ERISA

Circuit Decision Reminds Employers: Get Your Ducks in a Row at the EEOC Charge Stage and, for Goodness Sake, Know Your Own Policies

On our sister blog — Employer Law Report Sara Jodka analyzes a recent case — Gaglioti v. Levin Group, Inc. (6th Cir. Dec. 13, 2012), which serves as a good reminder to employers to pin down their reasoning for terminating an employee at the start, and stick to it.

In addition to his other claims, Gaglioti claimed that he was fired in response to the company’s fear of higher health costs for his wife, and that this was discriminatory under ERISA Section 510. Such a claim requires the plaintiff to establish “(1) prohibited employer conduct (2) taken for the …

How Do You Jack a 401(k) Plan? Santomenno v. John Hancock Life Insurance Company

If you are the fiduciary of an ERISA plan that invested in John Hancock group variable annuity contracts, we hope you have heard that three individuals have filed a lawsuit, claiming to be representing your plan and its participants and beneficiaries. You will not be receiving service of process.

Santomenno v. John Hancock Life Insurance Company is an “excessive fee” case. The Third Circuit held that a participant may bring ERISA Sections 502(a)(2) and (3) claims without first making demand upon the plan trustee who entered into the contract with the defendant, and without joining the plan trustee. The U.S. …

DOL Sues Insurance Brokerage Firm – Selection of an Annuity Provider for a Terminating Pension Plan is a Fiduciary Duty

The Department of Labor (“DOL”) has sued an insurance brokerage firm, and its owner, for allegedly breaching fiduciary duties associated with purchasing an annuity contract for a terminating defined benefit plan. The complaint alleges that in 2003, the firm entered into an agreement to function as an ERISA fiduciary with respect to the purchase, for a fixed fee of $50,000, with no additional compensation. The firm then purportedly arranged to receive an additional $522,047 of compensation from the insurance company that was eventually selected, and falsified information submitted by other bidders so that this insurance company would appear to be …

Congress Finally Passes Pension Funding Stabilization Provisions

Now that the excitement (or was that dread?) surrounding the Supreme Court’s ruling upholding the constitutionality of the health care reform legislation has dissipated somewhat, it seems timely to talk a little about pensions. At long last, and after several stalled efforts, meaningful pension funding stabilization legislation was enacted this summer. Congress passed and President Obama signed the Moving Ahead for Progress in the 21st Century Act (one has to wonder who comes up with these names over in Congress). The act, also known as “MAP-21”, makes important changes to how the interest rates used in defined benefit pension plan …

Fee Disclosures Are Almost Here — What Should Plan Sponsors Do Now?

The quickly approaching deadline for written fee disclosures by covered service providers creates new homework for plan sponsors–in the form of enhanced fiduciary review obligations and a suggested need to review (and/or create) written service agreements.

By now folks who work in the tax-qualified retirement industry are well (and perhaps painfully) aware that the United States Department of Labor (“DOL”) issued final service provider fee disclosure regulations early this year.  As the deadline for service providers to provide the required disclosures (i.e., July 1, 2012) draws close, it seems like an opportune time to consider what plan sponsors …

Fiduciary Litigation Update — Tussey v. ABB, Inc.

A recent case, Tussey v. ABB, Inc., has received much warranted and unwarranted attention in the Section 401(k) plan arena. In Part 1 of this legal update, we will explain the basics of what happened in this case. In Part 2, we will provide practical aspects of Tussey and deliver specific recommendations on how plan sponsors and fiduciaries can help minimize their potential fiduciary liability.

Part 1: Case Summary

By way of background, this case was one of 15 different cases filed in 2006 by a single law firm. These lawsuits were aimed at large employers alleging …

United States Supreme Court Declines to Review Sixth Circuit’s Rejection of Class Certification in ERISA Fee Case

The Supreme Court last week denied a writ of certiorari to review the Sixth Circuit’s rejection of class certification for a group of self-insured health plans alleging that their plan administrator charged them improper fees.

In Pipefitters Local 636 Insurance Fund v. Blue Cross Blue Shield of Michigan, No. 09-2607 (Aug. 12, 2011), the Sixth Circuit Court of Appeals reversed the district court’s decision to certify the class, which would have consisted of between 550 to 875 self-insured plans that entered into Administrative Services Contracts (“ASC’s”) with Blue Cross Blue Shield of Michigan (“BCBSM”). These services included payment of …

ERISA Multi-employer Plan Contingent Liability Indemnification Provision is Not Prohibited by Public Policy

Multi-employer plans have been catching my eye lately. These plans, sometimes called “Taft-Hartley plans,” are maintained pursuant to collective bargaining agreements between unions and various employers. In Shelter Distribution, Inc. v. General Drivers, Warehousemen & Helpers Local Union No. 89, the collective bargaining agreement provided that the union would indemnify the company for any contingent liability under the Multi-employer Pension Plan Amendments Act of 1980. The Sixth Circuit rejected the union’s argument that it is a violation of public policy for a union to indemnify an employer for contingent liability in an ERISA plan. In arriving at its decision, …

Road to ERISA Class Action Certification Gets Bumpier With Second Circuit Decision in Nationwide Life Ins. Co. v. Haddock

In Nationwide Life Ins. Co. v. Haddock, No. 10-4237-cv (Feb. 6, 2012), the Second Circuit vacated a district court’s order certifying an ERISA class action in light of the United States Supreme Court’s decision in Wal-Mart v. Dukes, 131 S. Ct. 2541 (2011). This decision may be a game-changer in the ERISA class action litigation arena, and may ease the pressure on service providers and employers to settle even frivolous claims to avoid the expense of litigation.

The Haddock litigation is substantial in terms of the number of plans involved. This is not the typical ERISA litigation involving …

Allowing Employee Investment in an ESOP or 401(k) Employer Stock Fund Becomes a Bigger Gamble – Sixth Circuit Decision in Pfeil v. State Street Bank & Trust Co.

The Sixth Circuit has reversed the district court’s dismissal of the GM ERISA stock-drop suit, Pfeil v. State Street Bank & Trust Co., and is allowing the case to proceed.  You may recall that we cautioned fiduciaries of ESOPs and 401(k) plans allowing investment in employer stock to keep an eye on this case because it could be a game-changer. And now it is.

The GM plan offered a number of investment options, one of which was the GM stock fund. The GM stock fund was not a default fund, and participants could change investments on any business day. …

Estoppel in ERISA: Simple Mistakes Can Lead to Costly Litigation

Plan administrators need to take steps to ensure that the information they provide to plan participants is accurate. Otherwise, plan participants may use this misinformation to bring an estoppel claim.

In civil litigation, defendants have long relied on equitable estoppel as an affirmative defense. The basic elements of an equitable estoppel defense are:

  • a definite misrepresentation of fact made to another person with the expectation that they will rely on it; and
  • reasonable and detrimental reliance on the misrepresentation

See, e.g., Heckler v. Community Health Servs. of Crawford County. The rationale behind this defense is that a party who …

The Top-Hat Plan Test for Your ERISA Executive Deferred Compensation Plan – Daft v. Advest, Inc.

A recent Sixth Circuit decision provides a tutorial on designing and administering an ERISA executive compensation top-hat plan. In Daft v. Advest, Inc., a U.S. Court of Appeals for the Sixth Circuit reversed the District Court’s decision that the executive compensation plan was an ERISA plan but was not a top-hat plan, on the grounds that the District Court should have remanded the matter to the plan administrator for expansion of the administrative record and its own determination on this issue. This is good news for the employer, and presumably good news for the other plan participants, because an …

New York’s Same Sex Marriage Law Has Broad Implications for Employee Benefit Plans

In a recent blog, we discussed a case that challenges the constitutionality of the Defense of Marriage Act (“DOMA”), which defines marriage for federal law purposes as a legal union between a man and a woman. DOMA was enacted during the administration of President Bill Clinton. Presuming DOMA is deemed constitutional by the courts and is not repealed by Congress (a possibility that appears remote at this point in time), employers theoretically could comply with federal employee benefits laws contained in ERISA by adopting (or maintaining) the DOMA definition of spouse. In turn, the broad preemption doctrine contained in ERISA …

The Constitutionality of the Defense of Marriage Act is Questioned in an ERISA Case

Feeling overwhelmed by ambiguous employee benefits law? You’re not alone. A law firm recently filed an interpleader in the Eastern District of Pennsylvania, asking the court to decide whether its deceased employee had a “spouse” who was entitled to profit sharing plan benefits. Cozen O’Connor, P.C. v. Tobits. The dollar amount at issue is small ($37,000) relative to the significant amount of attention being paid to this case.

Cozen O’Connor sponsors a profit sharing plan in which its employee, Sarah Farley, participated. When Ms. Farley died, she had no children, and she did not have a beneficiary designation on …

Join Us in Cleveland or Columbus for One of Our Upcoming Seminars

Would you like to spend a morning outside of the office, enjoying free breakfast and continuing education credit? Here’s your chance! This month, Porter Wright is sponsoring Employment Relations Seminars in both Cleveland and Columbus. I will be speaking about employee benefits developments and best practices at both session, and would love to see you there. Details follow, and we hope you can join us in one of these locations.

“Emerging Issues for Employers” Seminar to Be Held In Cleveland on October 20, 2011

Porter Wright is presenting a seminar on Thursday, October 20, 2011 from 8:30 – 11:45 a.m. …

The Fiduciary Exception to the Attorney-Client Privilege — “Document Everything” is a Best Practice, Except When It Isn’t

“Document everything” is often a best practice, but when you are an ERISA plan fiduciary communicating with your attorney, you may need to throw that thinking out the door. In Solis v. Food Employers Labor Relations Association the Fourth Circuit joined the Second, Fifth, Seventh, and Ninth Circuits in holding that the attorney-client privilege does not apply as to trust beneficiaries regarding communications between an ERISA plan fiduciary and an attorney when such communications relate to plan administration. The U.S. Supreme Court also recently discussed the fiduciary exception and its rationale in the context of ERISA matters in a recent …

Update on What Fiduciaries Need to Know about Investments and Fees

Plan fiduciaries generally understand that they have certain duties related to plan investments and service provider fees. Court decisions over the years have shed some light on these duties. Fiduciaries should already be doing the following to satisfy their fiduciary duties:

1. Obtain some measure of expertise in plan investments. Lacking expertise, a fiduciary should hire someone with the professional knowledge required to carry out the investment functions.

2. When selecting service providers, engage in a reasoned decision-making process and document the basis for decisions. The duty to act prudently focuses primarily on the decision-making process.

3. Pay only reasonable

DOL Urges Sixth Circuit to Weaken Presumption of Prudence of Plan Fiduciaries in Stock Drop Cases

The United States Department of Labor (“the DOL”) has challenged the dismissal of a 401(k) plan fiduciary breach claim on two grounds, in an amicus brief filed with the Sixth Circuit Court of Appeals, See Pfeil v. State Street Bank & Trust Co., E. D. Mich. No. 09CV12229; (Brief available here). One argument the DOL is rejecting is a position that affords fiduciaries of 401(k) plans and ESOPs a presumption of reasonableness in stock drop cases. The DOL’s second argument is that under the ERISA Section 404(c) safe harbor, fiduciaries may still be liable for the imprudent selection …

Sixth Circuit Allows ERISA Section 404(c) Safe Harbor to Protect a 401(k) Plan’s Directed Trustee from Responsibility for Losses in Self-Directed Brokerage Accounts

The Sixth Circuit recently allowed the ERISA Section 404(c) safe harbor to protect a 401(k) plan’s directed trustee from being held responsible for losses in self-directed brokerage accounts. See, Tullis v. UMB Bank, N.AThis case spotlights the importance of this safe harbor for plans that allow participant direction of investments, and the DOL’s recent efforts to limit the availability of this safe harbor. It also demonstrates the pros and cons of including self-directed brokerage accounts in a 401(k) plan.…

Sixth Circuit Upholds Denial of ERISA-Based Income Protection Benefits; Plan Administrator Need Not Investigate Whether the Employer Violated FMLA

I wanted to direct our readers to a recent post from Brian Hall – Editor of our sister blog – Employer Law Report – regarding a recent Sixth Circuit decision in Farhner v. United Transportation Union Discipline Income Protection Plan.  As Brian states:

… a well-drafted ERISA income protection or severance pay plan should enable the plan administrator to rely on the employer’s stated reason for termination of an employee, rather than conducting an independent review of the facts regarding the termination.

Click here to read Brian’s complete post.…

ERISA Time Travel Continues

On our sister blog – Employer Law Report – we recently blogged about an infrequent ERISA surprise from the US Supreme Court, in CIGNA v. Amara, and now we have a second ruling from the Supreme Court in that case, granting Amara certioria and remanding.  This is a procedural twist that is more interesting to lawyers than employers, but it underscores the point we made about uncertainty in this area:  we don’t really know what remedies are other “appropriate equitable relief” under ERISA, or know how much exposure employers face regarding their ERISA plans.  Establishing procedures for compliance with …

Supreme Court Time Travels with an ERISA Case

Supreme Court decisions about ERISA cases, while infrequent, typically contain some surprises, as demonstrated most recently in CIGNA Corp. v. Amara.

In 1997, CIGNA notified employees that it was freezing accruals under its traditional defined benefit plan, and converting the plan into a cash balance plan. A cash balance plan is a “hybrid” defined benefit plan with features similar to a defined contribution plan. The method for determining accruals under the cash balance plan is different from the method under the traditional defined benefit plan, and in many cases takes into consideration the benefits already accrued under the traditional …

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