Compliance December 31, 2018

2018 Delivered Key Decisions in ERISA Cases

ERISA lawsuits very often lead to settlements or dismissals, but 2018 brought a series of important and potentially precedent-setting decisions in both district and appellate courts.

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Some 83,000 lawsuits have been filed under the Employee Retirement Income Security Act (ERISA) in federal district court since 2009, according to Lex Machina, a LexisNexis company; fewer than 2% of cases proceed to trial.

Collected below is a run-down of some of the more important trial decisions from 2018. These cases help set the stage for litigation in 2019; ERISA experts anticipate another busy year.

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Full 9th Circuit Panel Asked to Review Chevron ERISA Case

Plaintiffs in the case say the appellate court held them to stricter pleading standards than it did plaintiffs in other Employee Retirement Income Security Act (ERISA) lawsuits. Read more. 

GE Dismissal Motions Mostly Flop in ERISA Self-Dealing Lawsuit

The judge approved just one part of General Electric’s motion to dismiss an ERISA lawsuit alleging self-dealing, allowing seven counts to proceed to discovery. Read more.

9th Circuit Reverses Dismissal of Intel Alternative Investment Suit

The appellate panel concluded that disputes of material fact exist as to the timing of the plaintiff’s actual knowledge of the alleged fiduciary breach, precluding summary judgment for untimely filing; after a detailed discussion of ERISA requirements, the case is remanded for further district court proceedings. Read more.

More DB Plan Sponsors Facing Lawsuits Over Use of Outdated Mortality Tables

As cases against MetLife, Pepsi and American Airlines have been filed, Groom Law Group questions whether these cases may present a new area of potential legal exposure. Read more.

USC Files Petition for Supreme Court to Review 9th Circuit’s Refusal to Compel Arbitration

The question before the high court is, “Whether an agreement to arbitrate ‘all claims’ that an ERISA plan participant ‘may have’ against a plan fiduciary encompasses a breach-of-fiduciary-duty claim under ERISA § 502(a)(2).” Read more.

Most Claims in Franklin Templeton Self-Dealing Suit Moved Forward

However, a federal judge gave the firm a win on a claim that its recordkeeping fees were unreasonable. Read more.

Key Parts of AT&T ERISA Lawsuit Dismissal Motion Fail

Another district court ruling in the matter of Alas vs. AT&T sides in part with the plaintiffs and in part with the defendants, making yet another amended complaint likely even before any allegations can advance to trial. Read more.

Putnam to Seek Supreme Court Input on Burden of Proof

Putnam Investments has asked for a stay in a case accusing it of self-dealing in its 401(k) plan so it can petition the U.S. Supreme Court regarding whether a plaintiff or an accused fiduciary has the burden of proving whether or not an ERISA fiduciary breach caused a loss. Read more.

Principal Defeats Guaranteed Investment Contract Lawsuit in District Court

At the heart of the complaint were guaranteed investment contracts, a type of group annuity contract sold to retirement plans, issued by Principal to ERISA-covered retirement plan participants. Read more.

5th Circuit Sides with Whole Foods in Stock Drop Litigation

The case ascended on appeal from the U.S. District Court for the Western District of Texas, where it also flatly failed to meet the high hurdles for proving standing established in Fifth-Third Bank vs. Dudenhoeffer. Read more.

Claims in T. Rowe Price Self-Dealing Suit Survive Motions to Dismiss

Claims that survived included fiduciaries breached their duties of loyalty and prudence in their selection and monitoring of investments, fiduciaries failed to monitor other fiduciaries, plan trustees failed to remedy actions of predecessors, and the fiduciaries engaged in prohibited transactions. Read more.

Voya Again Wins Dismissal of Stable Value ERISA Lawsuit

Echoing its original ruling, the district court’s second take concludes the lead plaintiff’s underlying allegations do not provide “more than a sheer possibility that a defendant has acted unlawfully.” Read more.

Wells Fargo Gets Dismissal of Proprietary TDF Suit Affirmed

The 8th Circuit ruled that the plaintiff failed to allege sufficient facts to demonstrate that the Wells Fargo TDFs were an imprudent choice. Read more.

Court Finds in Favor of NYU in 403(b) Plans Lawsuit

A federal district court judge found that “while there were deficiencies in the Committee’s processes—including that several members displayed a concerning lack of knowledge relevant to the Committee’s mandate—plaintiffs have not proven that the Committee acted imprudently or that the Plans suffered losses as a result.” Read more.

District Court Denies Independent Contractors’ Eligibility Arguments, ERISA Suit

“ERISA’s limitations on who employers can exclude from ERISA plans are very narrow,” the decision states. “The law prohibits an employer from denying participation in an ERISA plan on the basis of age or length of service. Other than that, any bases for exclusion from a plan are permissible.” Read more.

Brown University Wins Dismissal of Many Claims in 403(b) Plans Challenge

However, a federal district judge found enough plausible evidence to move some duty of prudence claims forward. Read more.

Second Amended ERISA Complaint Targeting Xerox HR Solutions Tossed by District Court

Considering a second amended complaint much broader than the original, a district court has once again rejected allegations by participants in a Ford Motor Company retirement plan that Xerox HR Solutions, the recordkeeper, violated the Employee Retirement Income Security Act. Read more.

Mandate Issued by 5th Circuit to Officially Vacate DOL Fiduciary Rule

While the deadline had already technically passed for the DOL to appeal the circuit court ruling vacating its fiduciary rule reforms, this highly anticipated move by the court is truly the end of an era. Read more.

4th Circuit Agrees Bank of America Cash Balance Participants Are Not Due More Relief

The appellate court found Bank of America did not profit from transferring participants’ 401(k) accounts to a cash balance plans and noted that previously the bank entered into a closing agreement with the IRS, paying a $10 million fine and setting up a special-purpose 401(k) plan to restore participants’ accounts. Read more.

Northwestern University 403(b) Lawsuit Tossed By District Court

Defendants strongly prevailed with their motion to dismiss, and the Illinois District Court barred further motions as moot: The complaint was far too general in its scope and allegations to move ahead. Read more.

Rare Motion for Reconsideration Granted by District Court in ERISA Suit

Legal experts generally consider reconsideration of a judgment an extraordinary remedy, one which will be granted only sparingly; even so, a federal district court has admitted key mistakes and says it will reconsider its ruling in a retirement plan lawsuit in which it had previously denied summary judgement in favor of the defendants. Read more.

Appeals Court Upholds ERISA Decision Against ‘Peeps’ Candy Company

On appeal, the candy company contended that the district court misapplied the federal statute governing multiemployer pension funds in critical status and, second, that the court erred in holding that it had failed to plead adequately its affirmative defenses. Read more.

Ruling on NY Times Multiemployer Plan Arbitration Challenge Rejects Use of ‘Segal Blend’

Following extensively detailed deliberation citing important SCOTUS rulings and other precedents, the district court ruling rejects a multiemployer plan’s usage of the so-called “Segal Blend” to set the discount rate for assessing a member’s withdrawal liability. Read more.

Court Denies Motion to Dismiss Edward Jones Self-Dealing Suit

U.S. District Judge John A. Ross noted in his order that the arguments the defendants advance in support of dismissal are virtually identical to those raised in their original motion which was rejected by the court and, absent a new argument, he is led to the same conclusion not to dismiss the suit. Read more.

Morningstar and Prudential Win RICO Suit Dismissal

The unsuccessful challenge was viewed as somewhat unique amid the glut of retirement industry litigation because it cited the Racketeer Influenced and Corrupt Organizations Law of 1970, known as RICO. Read more.

Fidelity Stable Value Fund Suit Gets Final Dismissal From Appellate Court

The court said the plaintiffs claim that Fidelity agreed to overly conservative investment guidelines in a failed effort to lock up all wrap coverage so that its competitors would not be able to obtain such coverage made little sense. Read more.

Court Finds ERISA Does Not Preempt Illinois Slayer Statute

The 7th U.S. Circuit Court of Appeals quoted a Supreme Court decision which said “the principle underlying the statutes—which have been adopted by nearly every State—is well established in the law and has a long historical pedigree predating ERISA.” Read more.

Forced Arbitration Denied in Charles Schwab Self-Dealing ERISA Class Action

The underlying lawsuit will proceed and will test whether the firm acted imprudently or disloyally in discharging its discretionary fiduciary authority when including its own affiliated investment products in its internal retirement plan. Read more.

Compliance December 31, 2018

Industry Groups Urge DOL to Expand MEP Proposed Rule

Several commenters argued that without changes, the proposed rule would have little impact on expanding retirement plan coverage for American workers.

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In October, the Department of Labor (DOL) issued a proposed rule for Definition of “Employer” under Section 3(5) of ERISA – Association Retirement Plans and Other Multiple-Employer Plans.

Retirement plan industry stakeholders were surprised and disappointed that the proposed rule fell short of allowing for open multiple employer plans (MEPs), which would not require that participating employers be related in some way. The DOL’s proposed rule did open the door for professional employer organizations (PEOs) to offer association retirement plans, but this still requires employer members of the plan to have contractual relationships with the PEO. The proposal did nothing to eliminate common nexus requirements—such as industry or geography—currently imposed on closed MEPs.

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Many industry groups that submitted comments argued that the plain language of Section 3(5) of the Employee Retirement Income Security Act (ERISA) indicates non-related employers could participate in MEPs. For example, Lynn D. Dudley, senior vice president, global retirement and compensation policy, American Benefits Council, wrote: “The majority of the conditions that the proposed regulation would impose on such ‘bona fide’ groups or associations do not have a basis in the statutory language of ERISA, which means that the Department has authority to greatly expand the use of MEPs by employer groups and associations beyond what is set forth in the proposal.”

Commenters point out that Section 3(5) of ERISA defines “employer” as: “any person acting directly as an employer, or indirectly in the interest of an employer, in relation to an employee benefit plan; and includes a group or association of employers acting for an employer in such capacity.” In his comment letter, Tim Rouse, executive director of The SPARK Institute, wrote: “Thus, any person that acts indirectly in the interests of an employer in relation to an employee benefit plan is considered an employer.  This includes a ‘group or association of employers acting for an employer in such a capacity,’ but is not limited to such a group or association.  In short, the minimum needed for an entity to be considered an ‘employer’ is that the entity (a) acts indirectly in the interest of an employer and (2) does so in relation to an employee benefit plan.”

With this in mind, Rouse recommended that the proposed rule be expanded to allow financial institutions to sponsor association retirement plans. The preamble to the proposal acknowledges that in “a broad colloquial sense, it is possible to say that commercial service providers, such as banks, trust companies, insurance companies, and brokers, act ‘indirectly in the interest of’ their customers, but that does not convert every service provider into an ERISA-covered ‘employer’ of their customer’s employees.”

Rouse says The SPARK Institute agrees that service providers are not automatically an “employer” with respect to the plan, but adds that “there is nothing in ERISA that prohibits a service provider from agreeing to take on the role of a plan sponsor.  And if a service provider agrees to act as plan sponsor, then it is perfectly correct to say that the service provider is ‘acting indirectly’ for the employer in relation to the plan.  In fact, that’s the most natural conclusion to draw from the plain language of the statute.”

A couple of commenters, including Aliya Robinson, executive director for retirement policy at the U.S. Chamber of Commerce, encouraged the DOL to consider including the requirements for a pooled provider that are spelled out under the Retirement Enhancement and Savings Act of 2018 (RESA). One element that RESA addresses and the DOL’s proposal doesn’t is the “one-bad-apple rule,” whereby every employer is jointly liable for the qualification failures of every other employer in the MEP. The rule is not within the jurisdiction of the DOL, so Robinson encouraged “the Treasury Department and Internal Revenue Service to address this issue as quickly as possible.”

The Investment Company Institute (ICI) also encourages the DOL to expand its proposal to allow financial institutions to sponsor MEPs, saying, “The Department’s narrow interpretation cannot be reconciled with its prior interpretations regarding state-run MEPs.” ICI noted that it previously questioned whether the special treatment conferred on states for purposes of sponsoring open MEPs is justified. “As we noted in our January 2016 comment letter relating to the IB [Interpretive Bulletin], the IB appears to make unsupported assumptions about a state’s qualifications, expertise, and ability to operate free of conflicts in offering private-sector retirement solutions,” wrote counsel for the ICI.

Several commenters argued that without changes, the proposed rule would have little impact on expanding retirement plan coverage for American workers—the aim of President Donald Trump’s executive order issued in August, calling on the DOL to consider the pros and cons of allowing small businesses to jointly offer retirement plans.

Comment letters to the DOL can be accessed here.

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