ERISA Litigation Roundup: Seventh Circuit Weighs in on Arbitration and Class Waiver Provisions in Defined-Contribution Plans

On September 10, 2021, the Seventh Circuit decided Smith v. Board of Directors of Triad Manufacturing Inc., No. 20-2708, holding that benefit plans may require claimants to arbitrate claims under the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1001, et seq. (ERISA), but may not preclude claimants from obtaining relief that ERISA provides.

Triad Manufacturing, acting through its board of directors, established an employee stock ownership plan (Plan) in December 2015, when several of Triad’s largest shareholders (Selling Shareholders) sold all of their stock to the Plan. The Plan was a defined-contribution employee retirement plan governed by ERISA. Triad, acting through the Board, was the Plan’s sponsor, GreatBanc served as the Plan’s trustee and James Smith was a former Triad employee and a participant in the Plan. When the value of Triad’s stock dropped significantly in the weeks following the ESOP transaction, the value of Smith’s interest in the Plan decreased commensurately, eventually prompting Smith to sue.

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ERISA Litigation Roundup: Fifth Circuit Affirms Decision in Favor of American Airlines in Suit Over Plan Investment Alternative Selection

Following the Fifth Circuit’s decision in Ortiz v. American Airlines, plan fiduciaries should be aware that the application of the Thole decision may be deemed inapposite to claims for a defined-contribution plan, where participants’ benefits are tied directly to fiduciary investment decisions.

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ERISA Litigation Roundup: The DOL Determines That Audio Recordings Must Be Produced Under ERISA’s Claim Regulations

On June 14, 2021, the Department of Labor (DOL) issued an information letter stating that plan fiduciaries have a duty under ERISA’s claim regulations to produce upon request recordings or transcripts of phone calls between benefit claimants and plan representatives regarding their benefit claims. The DOL letter is a call for plan administrators to revisit and potentially refine their processes for recording and storing such conversations.

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The DOL Provides Practical Guidance on the Application of PTE 2020-02

As described in our recent blog posts, the Department of Labor (“DOL”) recently issued guidance in the form of FAQs to address questions concerning the practical application of PTE 2020-02, Improving Investment Advice for Workers & Retirees.  This blog post discusses the guidance the DOL offers with respect to various topics under PTE 2020-02.  Guidance with respect to the general requirements of PTE 2020-02 was discussed in our prior blog post and the DOL’s guidance with respect to the application of PTE 2020-02 to rollover recommendations was discussed in our prior blog post.

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The DOL Provides Practical Guidance on the Application of PTE 2020-02 to Rollover Recommendations

As described in our recent blog post, the Department of Labor (“DOL”) recently issued guidance in the form of FAQs to address questions concerning the practical application of PTE 2020-02, Improving Investment Advice for Workers & Retirees. Recommendations regarding the rollover of assets from an employee benefit plan to an IRA are a key focus of the DOL and of these FAQs. This blog post discusses the guidance the DOL offers with respect to rollover recommendations under PTE 2020-02.

In 1975, the DOL issued a regulation that adopted a five-part test for determining when investment advice is “fiduciary investment advice” and would qualify an investment professional as a fiduciary under ERISA (the “1975 Labor Regulation”). The five-part test is met if an investment professional: 1) renders advice to a plan, plan fiduciary or IRA owner as to the value of securities or other property, or makes recommendations as to the advisability of investing in, purchasing, or selling securities or other property; 2) on a regular basis; 3) pursuant to a mutual agreement, arrangement, or understanding with the plan, plan fiduciary or IRA owner; 4) where the advice will serve as a primary basis for investment decisions with respect to plan or IRA assets; and 5) where the advice will be individualized based on the particular needs of the plan or IRA.

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The DOL Issues FAQs on Prohibited Transaction Exemption 2020-02 Related to Fiduciary Investment Advice

On December 18, 2020, the Department of Labor (“DOL”) adopted PTE 2020-02 Improving Investment Advice for Workers & Retirees (“PTE 2020-02”), a new prohibited transaction exemption related to fiduciary investment advice offered to plan sponsors and plan participants of ERISA-governed retirement plans and IRA owners.

Last month, the DOL issued guidance in the form of FAQs to address questions concerning the practical application of PTE 2020-02 (“FAQs”). These FAQs discuss various applications of PTE 2020-02, including guidance with respect to the general requirements of PTE 2020-02, recommendations for the rollover of employee benefit plan assets to an IRA, the use of disclaimers, the requirement to mitigate conflicts of interest, the use of payout grids for compensation, and the application of PTE 2020-02 to insurance industry financial institutions.

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DOL Provides (Informal, Non-Binding) Guidance on Missing Participants

On January 12, 2021, the Department of Labor (“DOL”) issued guidance that is intended to help retirement plan fiduciaries meet their ERISA obligations to locate and distribute benefits to missing or nonresponsive participants.

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Supreme Court Decision Caps Big Week in Litigation for Pharmacy Benefit Managers

The U.S. Supreme Court handed down a decision on Thursday of last week that will impact state-level regulation of pharmacy benefit managers (PBMs) by holding that an Arkansas law regulating PBMs was not preempted by the Employee Retirement Income Security Act (ERISA). The decision capped off a busy week in litigation for PBMs as on Monday the Second Circuit held that a business transaction between a PBM and an insurer was not a fiduciary act under ERISA. Although the cases involve distinct issues, they provide some clarity for PBMs on the interplay between business decisions and litigation risks, and some expectation for future regulation at the state-level.

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Plan Sponsor and Plan Administrator Escape 401(k) Plan Cybertheft Suit, But Recordkeeper Remains

An Illinois district court issued a split decision in a case involving the cybertheft of retirement plan assets, allowing the plan administrator and plan sponsor to be dismissed, but requiring the recordkeeper to defend allegations that it breached its fiduciary duties under the Employee Retirement Income Security Act (ERISA). Bartnett v. Abbott Laboratories, et. al. (N.D. Illinois, Case No. 1:20-cv-02127) is one of several recent lawsuits filed against plan sponsors and recordkeepers for allowing cyber-thieves to pilfer large distributions from participants’ retirement plan accounts.

Heide Bartnett, a former employee of Abbott Laboratories (Abbott) and participant in Abbott’s 401(k) plan, alleges that a hacker accessed her 401(k) account online, changed the password, added a new bank account and requested a $245,000 distribution from the 401(k) plan’s recordkeeper, Alight Solutions LLC (Alight) to be deposited into the newly added account. The imposter also called Alight several times to ask questions about the distribution.

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Federal Courts Continue to Dismiss ERISA Stock-Drop Claims Post-Jander

Ever since the Supreme Court’s decision in Fifth Third Bancorp v. Dudenhoeffer, 573 U.S. 409 (2014), plaintiffs’ attorneys have been trying to crack the code for pleading an ERISA duty-of-prudence claim against fiduciaries of employee stock ownership plans (ESOPs) following a drop in the company’s stock price. Those attempts have been largely unsuccessful, with the notable exception of Jander v. Retirement Plans Committee of IBM, 910 F.3d 620 (2d Cir. 2018), vacated and remanded, 140 S. Ct. 592, reinstated, 962 F.3d 85 (2d Cir. 2020). When the Supreme Court granted certiorari in Jander, many ERISA lawyers expected the Court to clarify how a plaintiff could satisfy the Dudenhoeffer standard while still preventing meritless stock-drop claims. But as it often does, the Supreme Court ducked the issue and remanded the case without addressing the merits.

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