As described in our May 1 blog post, in response to the COVID-19 pandemic, the Employee Benefits Security Administration, the Department of Labor (DOL), and the Internal Revenue Service, the Department of the Treasury (Agencies) recently issued guidance (Extension Guidance) providing emergency relief to employee benefit plans, participants, and beneficiaries for complying with certain deadline and notice requirements under the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code. As part of this guidance, the Agencies released a notification of relief (Joint Notice), which significantly affects administration of all ERISA-governed health, welfare and retirement plans by tolling certain claim-related deadlines throughout the duration of the National Emergency declared by President Trump. This alert, which can be read in its entirety on the Faegre Drinker website, describes the impact of those deadline extensions and provides practical guidance for plan sponsors and fiduciaries to consider in complying with the Joint Notice. For analysis of the Extension Guidance’s implications on retirement plans, see part one of this series of alerts.
With most of the nation on lockdown due to the COVID-19 pandemic, many employers are in the unfortunate position of having to lay off workers or significantly reduce their hours. If these workers also lose employer-sponsored health coverage, they will experience a “qualifying event” under the Consolidated Omnibus Budget Reconciliation Act (“COBRA”), triggering the requirement to send COBRA election notices describing the employee’s (and spouse’s) right to elect to temporarily stay on their employer’s health plan. In these difficult times, employers should review their notices to ensure they are compliant with COBRA and provide adequate information to employees. Compliance is especially important because COBRA notices have become the subject of a growing trend of class action lawsuits filed by ex-employees alleging that their former employers did not provide sufficient notice of their COBRA rights.
Generally, COBRA requires notices to be drafted in a manner that the average plan participant can understand, and must provide specifics about continuation coverage, such as the contact information for the administrator, how to elect coverage, and how much coverage costs. The DOL has issued model notice letters to help employers meet these requirements.
In its February 26, 2020, unanimous decision in Intel Corporation Investment Policy Committee v. Sulyma, the United States Supreme Court resolved a circuit split regarding what constitutes “actual knowledge” for purposes of triggering ERISA’s three-year statute of limitations for fiduciary breach claims. (ERISA § 413(2); 29 U.S.C. § 1113(2)). The Court found that a fiduciary’s act of disclosing investment information is necessary, but not sufficient to demonstrate that a participant has actual knowledge of the information contained in investment disclosures. Simply put, to “meet § 1113(2)’s ‘actual knowledge’ requirement … the plaintiff must in fact have become aware of that information.”
Under ERISA, a plaintiff must file a lawsuit within six years of the alleged fiduciary breach, or within three years of the date the plaintiff had “actual knowledge” of the breach. (ERISA § 413; 29 U.S.C. § 1113). Sulyma filed his lawsuit challenging the prudence of the Intel 401(k) plan fiduciaries’ investment decisions more than three years, but less than six years, after Intel provided ERISA-mandated disclosures of the investments at issue.
The U.S. Supreme Court is poised for a flurry of ERISA-related activity this year, with four cases on the docket. The first decision out of this quartet came on January 14, 2020, when the Supreme Court remanded the closely watched Retirement Plans Committee of IBM v. Jander to the Second Circuit Court to consider issues that were not fully developed at the court of appeals.
In Jander, the plaintiffs were participants in IBM’s employee stock ownership plan (ESOP), which invested in IBM stock. The plaintiffs alleged that the ESOP fiduciaries’ failure to make early corrective disclosures about an incorrect business valuation was a breach of fiduciary duty that caused the IBM stock to drop significantly.
The Second Circuit Court of Appeals gave participants in New York University’s (NYU) retirement plans a second chance at pursuing their claims of plan mismanagement under ERISA. On October 1, 2019, the Second Circuit overturned the Southern District of New York’s dismissal of the participants’ lawsuit against the independent investment advisor who advised NYU on its retirement plans, even though the complaint alleged substantially the same claims against NYU in a separate lawsuit on which NYU prevailed.
In Sacerdote v. New York University (Sacerdote I), filed in 2016, retirement plan participants brought a class action alleging that NYU breached its fiduciary duties and committed prohibited transactions under ERISA by causing its retirement plans to pay unreasonable administrative and recordkeeping fees and maintain imprudent investment options. Plaintiffs subsequently filed a related action in November 2017, Sacerdote v. Cammack Larhette Advisors, LLC (Sacerdote II), against independent investment advisor Cammack Larhette Advisors, LLC (Cammack). The NYU defendants in Sacerdote II quickly moved to dismiss the suit as duplicative of Sacerdote I, and the Southern District of New York ultimately dismissed the action in its entirety, finding that defendants were in “privity with NYU in Sacerdote I because they had a sufficiently close relationship with NYU and their interests with aligned with those of NYU.”
The Ninth Circuit’s recent decision forcing a 401(k) plan mismanagement lawsuit into arbitration is a significant ruling for plan sponsors. But it also leaves lingering questions about the enforceability of arbitration clauses written into plan documents. See Dorman v. Charles Schwab Corp., No. 18-15281, 2019 WL 3939644 (9th. Cir. Aug. 20, 2019).
Dorman is a putative class action involving allegations that the Schwab defendants breached their fiduciary duties by including Schwab-affiliated investment alternatives in its 401(k) plan, despite the funds’ alleged poor investment returns. Dorman, a former plan participant, sought monetary and other equitable relief on behalf of the plan under ERISA §§ 502(a)(2) and (a)(3). Schwab’s plan document included a mandatory arbitration provision for claims related to the plan and a waiver of class action lawsuits. Schwab filed a motion to compel arbitration, which was denied by the Northern District of California.