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.
Continue reading “Department of Labor Issues New Guidance on Private Equity Investments in Individual Account Plans”
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.
Continue reading “Benefit Plan Descriptions May Create Unilateral Contracts in Pennsylvania”
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”
On October 13, 2021, the Department of Labor (DOL) released a new proposed regulation under ERISA that would replace the previous administration’s “pecuniary factors” rule – which is widely viewed as discouraging the use of environmental, social, and governance (ESG) factors when selecting plan investments – with one that would encourage their consideration and provide a clearer pathway for plan fiduciaries to do so.
Over the years, the DOL’s stated position on the consideration of ESG and other “social” factors when selecting plan investments has toggled back and forth, largely along party lines.
Continue reading “Department of Labor Proposal Would Encourage Consideration of ESG Factors for Plan Investments”
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.
Continue reading “ERISA Litigation Roundup: Seventh Circuit Weighs in on Arbitration and Class Waiver Provisions in Defined-Contribution Plans”