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View From McDermott: 2014 ERISA Litigation Review–Decisions From the Supreme Court and Beyond

by Michael T. Graham | Apr 7, 2015 | Retirement Plans

Recently, the U.S. Supreme Court issued a number of significant ERISA cases. In its 2013-14 term, the Supreme Court decided two ERISA-based appeals – Fifth Third Bancorp v. Dudenhoeffer and Heimeshoff v. Hartford Life & Acc. Ins. Co. In the current 2014-15 term, the Supreme Court already issued one ERISA decision in M&G Polymers USA, LLC v. Tackett, and will issue another ERISA decision soon in Tibble v. Edison Int’l. Although these four cases have received much attention within the ERISA community, each year there are hundreds of other decisions issued by federal appellate and district courts that also impact a plan sponsor’s daily administration of welfare and retirement plans. In fact, many of these district court and appellate decisions are interpreting issues raised or addressed in these Supreme Court opinions. This article will address a few of these cases, which may not have received a lot of attention by the press, but could have long-lasting impacts on plan administration and litigation in future years.

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Sixth Circuit Rejects Claim that Disgorgement of Profits Is Appropriate Remedy in ERISA Benefit Denial Action

by Michael T. Graham and Patrick Ryan | Mar 31, 2015 | Benefit Controversies, Retirement Plans

On March 5, 2015, the U.S. Court of Appeals for the Sixth Circuit reversed the finding of a prior Sixth Circuit panel that allowed successful plaintiffs to recover additional equitable relief in the form of disgorgement of profits under a return-on-equity analysis in addition to the recovery of the denied benefits. This decision realigns the Sixth Circuit with the other circuits by requiring that plaintiffs prove a separate injury in order to receive additional equitable relief under ERISA.

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SEC No-Action Letter Permits Non-ERISA Retirement Plans to Issue Participant Fee Disclosures Without Violating Securities Laws

by McDermott Will & Emery, Brian Tiemann and Todd Solomon | Mar 26, 2015 | Retirement Plans

The U.S. Securities and Exchange Commission (SEC) issued a no-action letter on February 18, 2015, that extends relief from SEC Rule 482 to sponsors of certain retirement plans exempt from ERISA. The relief permits sponsors of non-ERISA plans to follow final U.S. Department of Labor regulations for participant-level fee disclosures, provided the sponsor complies with several conditions set forth by the SEC.

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Supreme Court Rejects Sixth Circuit’s Yard-Man Inferences in M&G Polymers USA, LLC v. Tackett

by Diane Morgenthaler, Joshua D. Rogaczewski and Michael T. Graham | Feb 24, 2015 | Benefit Controversies, Health and Welfare Plans

M&G Polymers USA, LLC v. Tackett, a recent unanimous decision by the Supreme Court of the United States, is a game changer. By expressly repudiating the U.S. Court of Appeals for the Sixth Circuit’s 1983 Yard-Man decision and the many decisions following it, the Supreme Court rejected three decades of Sixth Circuit law inferring that retiree health benefits are vested for retirees’ lives, and provided new clarity in interpretation of retiree medical benefits under collective bargaining agreements.

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Employers with Group Health Plans: Have You Notified State Regulators of the Breach?

by Anthony A. Bongiorno and Amy C. Pimentel | Feb 23, 2015 | Health and Welfare Plans, Privacy and Data Security

Data security breaches affecting large segments of the U.S. population continue to dominate the news. Over the past few years, there has been considerable confusion among employers with group health plans regarding the extent of their responsibility to notify state agencies of security breaches when a vendor or other third party with access to participant information suffers a breach. This On the Subject provides answers to several frequently asked questions to help employers with group health plans navigate the challenging regulatory maze.

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The Directed Trustee in the Post-Dudenhoeffer World

by Joseph K. Urwitz | Jan 22, 2015 | Employee Stock Ownership Plans (ESOPs), Fiduciary and Investment Issues, Retirement Plans

Court cases challenging the actions of Employee Retirement Income Security Act fiduciaries have continued unabated since the scandal of Enron in 2002. Since then, a large number of cases are in the “stock drop” area, which encompasses cases relating to employer securities investments when the stock price drops severely. The litigation has focused on whether a presumption of prudence exists that protects fiduciaries holding employer securities investments on behalf of a retirement plan. In June 2014, the U.S. Supreme Court ruled in the case of Fifth Third Bancorp v. Dudenhoeffer that ERISA doesn’t provide a presumption of prudence to protect fiduciaries of plans investing in employer securities. Now that the Dudenhoeffer decision resolves the presumption issue, it is reasonable to expect that ERISA cases may return to focus on the fiduciary duties of a directed license.

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You’ve Acquired a New Qualified Retirement Plan? Time for a Compliance Check

by Jeffrey Holdvogt | Nov 12, 2014 | Retirement Plans

In connection with a merger or acquisition, an acquiring company may end up assuming sponsorship of a tax-qualified retirement plan that covers employees of the acquired company. This article provides a brief summary of some key issues that a company should focus on to ensure that the numerous administrative and fiduciary requirements involved in maintaining a qualified retirement plan will continue to be met on an ongoing basis if the plan will continue to be maintained following the acquisition.

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Supreme Court to Review Application of ERISA’s Six-Year Statute of Limitations in Tibble v. Edison Int’l.

by Patrick Ryan | Nov 5, 2014 | Retirement Plans

On October 2, 2014, the Supreme Court of the United States granted the plaintiffs’ petition for a writ of certiorari in Tibble v. Edison International to answer “Whether a claim that [Employee Retirement Income Security Act] ERISA plan fiduciaries breached their fiduciary obligation by offering higher-cost retail-class mutual funds to plan participants, even though identical lower-cost institutional-class mutual funds were available, is barred by 29 U.S.C. § 1113(1) when fiduciaries initially chose the higher-cost mutual funds as plan investments more than six years before the claim was filed.” The underlying claim asserts that the investment committee of the Edison 401(k) Savings Plan (the Plan), a defined contribution plan sponsored by Edison International, breached its fiduciary duty, although the issue presented to the Supreme Court focuses on the statute of limitations applicable to that claim.

The Plan’s investment committee selected a variety of funds for the investment of Plan assets. The funds selected by the investment committee were retail-class funds, which charged higher fees than the comparable institutional-class funds available in the retail market. Plan participants sued, alleging that lower-cost mutual funds were available and should have been selected for the Plan’s investment portfolio. The district court dismissed the case and the U.S. Court for the Ninth Circuit affirmed the dismissal on the basis that the funds were selected more than six years earlier and were therefore barred by ERISA statute of limitations.

ERISA provides a six-year period within which a participant or beneficiary may sue based on allegations of a breach of ERISA fiduciary duties. In general, the ERISA statute of limitation period begins to run on the date of the last act that constitutes a fiduciary breach owed to the beneficiaries. The U.S. District Court for the Central District of California dismissed several claims in the plaintiffs’ lawsuit, concluding that these claims were statutorily barred because the plaintiffs’ filed them after expiration of the six-year statute of limitations period. In addition, the district court ruled that it must defer to the investment committee’s selection of the higher-cost mutual fund by application of the deferential Firestone standard previously set by the Supreme Court.

In its petition for certiorari, the plaintiffs asked that the Supreme Court determine whether ERISA’s six-year limitations period begins on the date that the investment committee initially selected the higher-cost mutual fund options for the Plan’s investment portfolio or whether the on-going offering of such funds constituted a “continuing” fiduciary breach, thereby extending the period. The Supreme Court elected not to address whether the Firestone deference applies to fiduciary breach actions with respect to whether a fiduciary failed to follow plan terms in the selection of investment options.

This case follows the Supreme Court’s 2013 decision in Heimeshoff v. Hartford Life & Accident Insurance Co. Heimeshoff concluded that an ERISA plan’s contractual three-year limitations period for benefit claims was enforceable, despite the fact that the statute of limitations began to run before the participant’s benefit claim had been decided by the plan administrator. Conversely, in Tribble v. Edison, Int’l., the Supreme Court is asked when ERISA’s [...]

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PBGC Coverage May No Longer Apply to Puerto Rico-Only Qualified Retirement Plans

by Jeffrey Holdvogt | Oct 22, 2014 | Retirement Plans

Employers that sponsor defined benefit qualified retirement plans benefiting only Puerto Rico employees should be aware that Pension Benefit Guaranty Corporation (PBGC) coverage may no longer apply. Last year, the PBGC withdrew old prior opinion letters (Opinion Letters 77-172 and 85-19) regarding PBGC coverage in Puerto Rico and Guam. Those opinion letters articulated the PBGC’s position at that time, that Title IV of the Employee Retirement Income Security Act (ERISA) (providing for PBGC coverage), may apply to defined benefit plans covering only Puerto Rico participants if the Puerto Rico plan is either qualified under Section 401(a) of the U.S. Internal Revenue Code or has been operated in practice in accordance with the requirements of Section 401(a) for at least the five preceding years. Earlier this year, in remarks made at an enrolled actuaries meeting, PBGC officials stated that, going forward, PBGC will determine that a plan is not covered under Title IV of ERISA if (1) the plan’s trust is created or organized outside of the United States (e.g., Puerto Rico) and (2) no election under ERISA section 1022(i)(2) has been made. As a result, it appears the new PBGC position is that Puerto Rico-only qualified plans generally are not covered under Title IV of ERISA (although dual-qualified plans with Puerto Rico participants are covered). Since few Puerto Rico plans have made an election under ERISA section 1022(i)(2) due to the strict U.S. laws applicable to such arrangements, this new PBGC position will affect a number of Puerto Rico-only defined benefit plans. PBGC officials also stated that if the PBGC determines that a plan is not covered under Title IV of ERISA, it may refund up to six years of premiums.

Employers with Puerto Rico-only defined benefit plans should consider whether PBGC coverage of their plan is still possible or desired. If not, a refund of PBGC premiums should be sought.

Senate Unanimously Approves Bill Modifying ERISA Section 4062(e)

by Michael T. Graham and Patrick Ryan | Sep 30, 2014 | Retirement Plans

On September 16, 2014, the United States Senate unanimously approved Senate Bill 2511, which would amend Section 4062(e) of the Employee Retirement Income Security Act of 1974, as amended (ERISA), to clarify the definition of substantial cessation of operations. ERISA Section 4062(e) enables the Pension Benefit Guaranty Corporation to require that employers financially guarantee pension obligations based on a plan’s underfunded termination liability when an employer that maintains a pension plan shuts down operations at a facility, and as a result, more than 20 percent of the employer’s employees who are plan participants incur a separation from employment.

The bill revises ERISA Section 4062(e) to clarify that a “substantial cessation of operations” occurs when an employer permanently ceases operations at a facility and, as a result, there is a “workforce reduction” of more than 15 percent of all eligible employees at all facilities in the contributing employer’s controlled group. Under the amendment, a “workforce reduction” would mean the number of eligible employees at a facility who are separated from employment by reason of the permanent cessation of operations of the employer at the facility. Certain eligible employees would be excluded from the reduction analysis, including employees who, within a reasonable period of time, are replaced by the employer, at the same or another facility in the United States, by an employee who is a citizen or resident of the United States. In addition, employees would not be not taken into consideration for these purposes following the sale or other disposition of the assets or stock of the employer if the acquiring entity maintains the single-employer plan of the predecessor employer that includes assets and liabilities attributable to the accrued benefit of the employee and either (1) the employee is separated from employment at the facility, but within a reasonable period of time, is replaced by the acquiring entity by an employee who is a citizen or resident of the United States, or (2) the eligible employees continues to be employed at the facility of the acquiring entity.

The Congressional Budget Office estimates that Senate Bill 2511 would reduce the contributions that plan sponsors are required to make to their plans as a result of terminating operations at a facility, leading to increases in employer revenues and decreases in direct spending. The House of Representatives concluded its fall session on September 19, 2014 without acting on the bill. It remains to be seen whether the House will take up the Senate bill when it returns for a “lame-duck” session after the mid-term elections.

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