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.
Continue reading “Thinking ESOPs: Courts Desperately Need Contextual Clues in Disputes Over Enforceability of Arbitration Provisions”
In Newsom v. Reliance Standard Life Ins. Co., the Fifth Circuit clarified when it is appropriate for a district court to remand an ERISA dispute to a plan administrator for development of a merits record. 26 F.4th 329 (5th Cir. 2022). James Newsom suffered from a variety of maladies, and in September 2017 his employer reduced his schedule to 32 hours per week. In October 2017, Newsom’s schedule again was reduced to 28 hours per week, and he stopped working entirely on January 30, 2018. After Newsom filed a claim for disability benefits, Reliance Standard, the claims administrator, determined that his date of disability was January 30, 2018, and since he was working less than 30 hours per week at that time, he was not a full-time employee and did not qualify for long-term disability coverage. After Newsom sued, the district court determined that Newsom’s date of disability was October 2017, that Newsom was a full-time employee as of that date, and that he was eligible for long-term disability coverage. Accordingly, and without further analysis, the district court awarded Newson long-term disability benefits.
Continue reading “Fifth Circuit Clarifies Standard for Remanding ERISA Dispute to Plan Administrator”
When determining alternative pension benefits (such as joint and survivor annuities and early retirement benefits), a recent court decision held that underlying actuarial assumptions selected decades ago do not violate federal law simply because they are outdated and may result in a pension benefit that is less than using more current actuarial assumption.
Continue reading “ERISA Litigation Roundup: Mortality Table Pension Plan Litigation – Reasonableness Not Required”
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.
Continue reading “ERISA Litigation Roundup: SCOTUS Vacates and Remands Seventh Circuit’s 403(b) Decision in Northwestern”
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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On January 20, 2022, the United States District Court for the Southern District of Florida enforced a mandatory arbitration and class action-waiver provision (Arbitration Provision) in an ERISA-governed defined contribution plan, precluding a putative class of former and current plan participants from pursuing breach-of-fiduciary duty claims against plan fiduciaries in federal court. The plaintiffs in Holmes v. Baptist Health South Florida, Inc., 2022 WL 180638, argued that the plan’s Arbitration Provision was unenforceable as it both violated the “effective vindication” doctrine and was unenforceable because the participants did not knowingly agree to it. The court rejected both arguments.
Holmes adds to the flurry of recent decisions on the enforceability of mandatory arbitration and class action-waiver provisions in defined-contribution plans, which have yielded inconsistent results and are still working their way through courts of appeals. However, plan sponsors following this line of cases can glean several takeaways from the Holmes decision:
Continue reading “ERISA Litigation Roundup: Florida Federal District Court Compels Individual Arbitration of ERISA Class Action”
Written descriptions of employee benefits may expose Pennsylvania employers to additional contractual obligations and liabilities. According to a three-judge Pennsylvania Superior Court panel, providing written descriptions to employees regarding various benefits, incentives and rewards may form a binding, unilateral contract creating rights and obligations separate from an employee’s at-will relationship with the employer.
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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.
Continue reading “Thinking ESOPs: Sixth Circuit Enforces ERISA Exclusion in ESOP Trustee’s Insurance Policy”
On September 30, 2021, the U.S. District Court for the District of Connecticut dismissed an ERISA stock-drop lawsuit brought against alleged fiduciaries of Aetna, Inc.’s (Aetna’s) employee stock ownership plan (ESOP), holding that the plaintiffs failed to state a fiduciary breach claim under ERISA. Radcliffe v. Aetna, Inc., No. 3:20-cv-01274, 2021 WL 4477408 (D. Conn. Sept. 30, 2021).
Continue reading “ERISA Litigation Roundup: Federal District Court Dismisses ERISA Stock-Drop Suit”
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.
Continue reading “Thinking ESOPs: Court Rejects DOL Claims of ESOP Overpayment”