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.
When an ERISA plan delegates authority to the plan administrator to interpret the plan documents for benefit determinations, the plan administrator typically is entitled to a deferential standard of judicial review, and courts will look for abuse of discretion rather than impose a de novo standard of review. In Lyn M. v. Premera Blue Cross, – F.3d –, 2020 WL 4249129 (10th Cir. Jul 24, 2020), the U.S. Court of Appeals for the Tenth Circuit limited the deferential standard of review, holding that a de novo review applied when the plan administrator did not adequately disclose to the plan participants the instrument delegating discretionary authority to the plan administrator.
In a 5-4 decision in Thole v. U.S. Bank N.A., the Supreme Court found that participants in a defined benefit pension plan lacked Article III standing to sue under the Employee Retirement Income Security Act of 1974 (ERISA) for alleged mismanagement of that plan, finding the plaintiffs suffered no concrete injury that could be redressed by the lawsuit.
Plaintiffs were former employees of U.S. Bank who, having retired as vested participants in its defined benefit plan, had already begun receiving fixed monthly payments. They filed a class action lawsuit under ERISA in 2013 against the plan sponsor and numerous plan fiduciaries, alleging that defendants breached their fiduciary duties by investing plan funds in the investment managers’ mutual funds, paying excessive management fees, and making imprudent investment decisions that led to $750 million in losses to the plan. The trial court dismissed the lawsuit after the plan, which was underfunded when the suit was filed, became overfunded when the company contributed $311 million to bring the plan into compliance, which the court found mooted plaintiffs’ claims. The Eighth Circuit affirmed on the basis that the overfunded nature of the plan removed plaintiffs’ statutory standing under ERISA to sue.
To address growing concerns over an increase in ERISA litigation claims related to the COVID-19 pandemic, Faegre Drinker’s ERISA litigation team developed the “Preventing an ERISA Litigation Outbreak After COVID-19” alert series to help clients navigate the fiduciary and plan liability issues associated with COVID-19. Part Two of our series examines the potential for fraudulent 401(k) distributions as an unexpected result of the Coronavirus Aid, Relief and Security Act (CARES Act), and highlights steps plan sponsors and recordkeepers can take to mitigate the risk of these cybercrimes.
View Part One of this series, which provides guidance to assist ESOP fiduciaries in carrying out their duties during the pandemic.
In addition to raising a host of regulatory issues for employee benefit plans, including compliance with the Coronavirus Aid, Relief and Economic Security (CARES) Act, the COVID-19 pandemic is likely to cause a sharp rise in ERISA litigation in the coming months. Faegre Drinker’s ERISA litigation team will be issuing a series of alerts designed to help clients navigate the fiduciary and plan liability issues associated with COVID-19. Part One of our series provides helpful guidance for ESOP fiduciaries carrying out their duties during this uncertain time.
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.
In our fifth installment of ERISA at 45, Kim Jones speaks with Sarah Bassler Millar about the considerable increase in 401(k) litigation and the increased pressure on plan performance; excessive fee lawsuits and the three ERISA cases to watch before the U.S. Supreme Court this term; and the focus employers should place on prudent decision-making to reduce plan sponsor liability, especially in light of high-dollar amounts in settlements.
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.”