Compliance

DOL Agrees Foot Locker Should Reform Cash Balance Plan

The agency filed a brief in a federal appellate court case about whether Foot Locker misled employees upon conversion from a traditional pension to a cash balance plan.

By Rebecca Moore editors@assetinternational.com | May 31, 2016
Page 1 of 2

In a case before the 2nd U.S. Circuit Court of Appeals in which Geoffrey Osberg claims his employer, Foot Locker, issued false and misleading summary plan descriptions (SPDs) in violation of the Employee Retirement Income Security Act’s (ERISA) disclosure requirements when it converted from a traditional defined benefit plan to a cash balance plan, the U.S. Department of Labor (DOL) has filed a brief in support of a district court’s decision that plan reformation is justified.

Osberg said Foot Locker failed to provide plan participants with notice, as required by ERISA, that the cash balance arrangement could potentially reduce future benefit accruals.

The DOL says the district court properly concluded that plaintiffs timely filed their complaint asserting fiduciary breach claims under ERISA's provision allowing suit within six years of discovery of a statutory breach or violation in cases involving "fraud or concealment." Contrary to Foot Locker's assertion, plaintiffs were not required to establish the elements of common law fraud, including intentionality and reliance, to show concealment for purposes of this statutory provision.

According to the DOL, “Foot Locker likewise errs in arguing that each member of the class must demonstrate that he or she detrimentally relied on Foot Locker's misrepresentations in order to establish that Foot Locker breached its duties as a fiduciary and to obtain equitable relief in the form of reformation.” The brief says this argument ignores the 2nd Circuit’s own precedent in Amara where, after remand from the Supreme Court, it soundly rejected the argument that plan participants and beneficiaries need to show detrimental reliance to obtain reformation under ERISA Section 502(a)(3) as relief for fiduciary misrepresentations and omissions.

The DOL adds that no pre-Amara case from the 2nd actually holds that each member of a class of plan participants must establish detrimental reliance to prove a fiduciary breach based on misrepresentations or to obtain reformation as relief, nor does any other case cited by Foot Locker so hold.

Just as each class member need not establish detrimental reliance, each and every member need not show mistake in order to obtain plan reformation, the brief says. “Again, in arguing to the contrary, Foot Locker ignores this Court's decision in Amara, which concluded that plan participants can prove mistake for purposes of reformation ‘through generalized circumstantial evidence in appropriate cases,’ such as where ‘defendants have made uniform misrepresentations about an agreement's contents and have undertaken efforts to conceal its effect.’”

NEXT: Case history