Thinking ESOPs: Courts Desperately Need Contextual Clues in Disputes Over Enforceability of Arbitration Provisions

Enforcement of an ERISA plan’s arbitration provision has become a hotly litigated issue. Plaintiffs and courts often raise two objections to arbitration provisions in ERISA plans, including ESOPs. The first is whether participants or the plan itself consented to the arbitration provision. The second is whether class-action waiver language, which requires individualized arbitration, is enforceable under ERISA.

There have been several important ERISA arbitration decisions in recent years, including many involving ESOPs. Interestingly, these decisions suggest that courts are struggling with the same statutory-interpretation problems that courts struggle with when addressing a number of issues raised by ESOP litigation. Many key ERISA provisions are difficult, if not impossible, to interpret based solely on their express language. This is a real problem in ESOP litigation because many disputes turn on a court’s interpretation of the opaque ERISA provisions that are implicated by the disputes.

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ERISA Litigation Roundup: SCOTUS Vacates and Remands Seventh Circuit’s 403(b) Decision in Northwestern

Last week, the Supreme Court issued its anticipated ruling in the ERISA fiduciary-breach class action Hughes v. Northwestern. In its unanimous decision, the Court vacated the Seventh Circuit’s dismissal of the case and sent the case back to the lower court for further review. The narrow decision may boost plaintiffs in similar ERISA cases involving challenges to retirement plan fees and investment options, but it also offers hope to defendants.

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Department of Labor Issues New Guidance on Private Equity Investments in Individual Account Plans

On December 21, 2021, the Department of Labor (DOL) issued additional guidance on the use of private equity investments in certain retirement plans, warning that most plan fiduciaries will not have enough experience to adequately evaluate such investments.

The DOL’s guidance relates to a June 3, 2020 “information letter” (which is a non-binding statement) issued by the Employee Benefits Security Administration of the DOL . In that information letter, the DOL addressed private equity investments in “designated investment alternatives” (or DIAs) offered to participants in individual account plans, like 401(k) plans, considered whether ERISA prohibits offering certain private equity investments to participants in individual account plans.

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Thinking ESOPs: Sixth Circuit Enforces ERISA Exclusion in ESOP Trustee’s Insurance Policy

A recent Sixth Circuit Court of Appeals decision serves as a warning to policyholders: read your entire policy, understand each provision and confirm that the policy language accurately reflects your understanding of the coverage you purchased.

Navigating an insurance policy is not easy. A policy’s declarations, general terms, insuring agreements, definitions, exclusions, conditions and endorsements collectively set forth the scope of the policy’s coverage. With very rare exceptions, both the insurer and the policyholder will be bound by the language found in the policy. This is true even if the language in the policy is unfavorable to the policyholder and does not cover risks the policyholder was attempting to mitigate through insurance.

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Thinking ESOPs: Court Rejects DOL Claims of ESOP Overpayment

The board of directors of Bowers + Kubota Consulting, Inc. recently won an employee stock ownership plan (ESOP) fiduciary/breach case brought against them by the Department of Labor. See Walsh v. Bowers, et al., No. 1:18-cv-00155-SOM-WRP (D. Haw. Sept. 17, 2021). After a full trial on the merits, the district-court judge entered judgment in favor of the defendants, largely based on the court’s rejection of the DOL’s critiques of the valuation upon which the trustee relied. What is perhaps most interesting about the court’s decision is the contrast between the discussion in this case of fundamental ERISA and valuation concepts, on the one hand, and the discussion of fundamental ERISA and valuation concepts in two other cases in which courts entered judgment against the defendants.

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Thinking ESOPs: Enforceability of Arbitration Provisions — There Might Be More to the Analysis

Recently, the Sixth Circuit Court of Appeals held that a plaintiff was required to request attorneys’ fees during an arbitration of an ERISA claims dispute. Having failed to do so, the plaintiff could not subsequently seek a fee award from the district court. The Sixth Circuit held that because the parties were obligated to arbitrate their ERISA disputes, the court’s jurisdiction was limited, and the parties were obligated to raise any remedy issues during the arbitration.

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Thinking ESOPs: What the Supreme Court’s Decision in a 401(k) Fee Case Could Mean for ESOPs

The U.S. Supreme Court recently agreed to hear a challenge to the dismissal of an Employee Retirement Income Security Act (ERISA) 401(k) excessive fee case. The case involves a question about whether jury trials are appropriate in ERISA cases, but also a question about what an ERISA lawsuit must plead in order to survive a motion to dismiss, particularly when the lawsuit brings a claim for breach of fiduciary duty in managing a 401(k) plan’s fees and investment options. The 401(k) community is watching this case closely, and the employee stock ownership plan (ESOP) community also should pay close attention.

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