8 major takeaways from ERISA litigation in 2014
September 25, 2014 12:54 PM
1) Travelling union members entitled to reciprocity pension contributions
The Case: A traveling union employee brought a suit against IBEW Pacific Coast Pension Fund (the local plan) trustees, who had adopted an amendment to allow the local plan to withhold a portion of all reciprocity contributions made on behalf of traveling union employees. The court found that a multiemployer union pension plan in critical funding status may not withhold a part of reciprocity contributions due to travelers home funds in order to fund its own rehabilitation plan, and ordered trustees to transfer all wrongfully withheld reciprocity pension contributions to the employees home fund and clarified his future right to such contributions.
Key Lessons: Traveling employees who are signatories to a reciprocity agreement may receive increased pension benefits in their home funds if they perform work in the jurisdiction of a local plan that wrongfully withholds all or a portion of the reciprocity contributions made on behalf of traveling employees. Employers of such traveling union employees may want to make them aware of this right, advise Christine C. Hawkins, an associate in the Bellevue office and Richard J. Birmingham, a partner in the firms Seattle office. (Image credit: Fotolia)
Key Lessons: Traveling employees who are signatories to a reciprocity agreement may receive increased pension benefits in their home funds if they perform work in the jurisdiction of a local plan that wrongfully withholds all or a portion of the reciprocity contributions made on behalf of traveling employees. Employers of such traveling union employees may want to make them aware of this right, advise Christine C. Hawkins, an associate in the Bellevue office and Richard J. Birmingham, a partner in the firms Seattle office. (Image credit: Fotolia)
2) TPA engages in prohibited self-dealing by concealing fees
The Case: Blue Cross Blue Shield of Michigan (BCBSM), the third-party administrator (TPA) for the plan, was sued by Hi-Lex Controls Inc. for breaching its fiduciary duty by engaging in self-dealing. Hi-Lex sued BCBSM after discovering the fiduciary began adding additional mark-ups to hospital claims in 1993. BCBSM misrepresented these additional fees in contract documents and assured Hi-Lex no other fees were charged besides the administrative fee. The district court agreed with Hi-Lex and awarded the company over $5 million in damages and prejudgment interest of almost $914,241.
Key Lessons: A TPA will be found to have discretionary authority over plan assets, and thus be a plan fiduciary, even if plan assets are not held in trust so long as plan documents, such as the summary plan description, support the position that plan beneficiaries have a reasonable expectation of a beneficial ownership interest in the funds held by the TPA. In addition, in cases of fraud or concealment, the statute of limitations shall be six years from the time the fraud or concealment is discovered, instead of the standard three-year statute of limitations. (Image credit: Fotolia)
Key Lessons: A TPA will be found to have discretionary authority over plan assets, and thus be a plan fiduciary, even if plan assets are not held in trust so long as plan documents, such as the summary plan description, support the position that plan beneficiaries have a reasonable expectation of a beneficial ownership interest in the funds held by the TPA. In addition, in cases of fraud or concealment, the statute of limitations shall be six years from the time the fraud or concealment is discovered, instead of the standard three-year statute of limitations. (Image credit: Fotolia)
3) Church plans should proceed with caution unless established and created directly by a church
The Case: A 2014 decision in federal trial court rejected the position that a plan established and maintained by a church-affiliated hospital is exempt from ERISA under the church plan exemption. This is contrary to the long-standing position taken by other courts, the IRS, and the DOL, and was made despite an IRS private letter ruling determining that the plan at issue was a church plan. The court concluded that while an exempt plan can be maintained by a church-affiliated organization, a plan cannot be a church plan unless established and created directly by a church.
However, after the above decision, U.S. District Court reached the opposite conclusion, ruling that a pension plan sponsored by a church-affiliated, tax-exempt health care system is a church plan as defined in ERISA Section 3(33). In its determination, the district court looked at the plain language of the church plan exemption, interpreting the interplay between parts (A) and (C) differently than the federal trial court to reach an opposite conclusion.
Key Lesson: Both courts contrasting decisions cast doubt on a plans church plan status and whether a plan is exempt from ERISAs reporting and disclosure, funding, trust and fiduciary rules. To be safe, church plans not established and created directly by a church should still proceed with caution or consult a legal adviser. The proper interpretation of the church plan exemption will likely need to be resolved by the circuit courts. (Image credit: Fotolia)
However, after the above decision, U.S. District Court reached the opposite conclusion, ruling that a pension plan sponsored by a church-affiliated, tax-exempt health care system is a church plan as defined in ERISA Section 3(33). In its determination, the district court looked at the plain language of the church plan exemption, interpreting the interplay between parts (A) and (C) differently than the federal trial court to reach an opposite conclusion.
Key Lesson: Both courts contrasting decisions cast doubt on a plans church plan status and whether a plan is exempt from ERISAs reporting and disclosure, funding, trust and fiduciary rules. To be safe, church plans not established and created directly by a church should still proceed with caution or consult a legal adviser. The proper interpretation of the church plan exemption will likely need to be resolved by the circuit courts. (Image credit: Fotolia)
4) Employers have no cause of action against multiemployer trustees for negligent plan management
In this case, Trustees terminated the Teamsters Local Union No. 293 Pension Plan after substantially all of the participating employers had withdrawn, triggering a mass withdrawal and subjecting the employer to $1.7 million in liability. The employer filed a suit against the Trustees, claiming that their negligent management of the plan assets increased their withdrawal liability. The company asked the court to recognize a common law right of employers to bring a negligence claim against plan trustees.
The district court dismissed the claim, refusing to recognize such a common law right and the 6th Circuit agreed.
Key Lesson: In the 6th Circuit, employers who are concerned that funds are being mismanaged cannot challenge the trustees management in court. A participant, however, would be able to raise similar claims, provided that they can show damage. (Image credit: Fotolia)
The district court dismissed the claim, refusing to recognize such a common law right and the 6th Circuit agreed.
Key Lesson: In the 6th Circuit, employers who are concerned that funds are being mismanaged cannot challenge the trustees management in court. A participant, however, would be able to raise similar claims, provided that they can show damage. (Image credit: Fotolia)
5) U.S. Supreme Court rejects Moench presumption, adopts plausibility standard
The Case: The U.S. Supreme Court addressed whether ESOP fiduciaries are entitled to the presumption of prudence standard articulated in Moench v. Robertson, 62 F.3d 553 (3rd Cir. 1995). In this 2014 case, former employees and ESOP participants filed a putative class action, arguing that the ESOP fiduciaries knew or should have known on the basis of public and nonpublic information that the company stock was overvalued and, as a result, breached the duty of prudence by continuing to invest plan assets in the ESOP. The Supreme Court agreed with the 6th Circuit that the Moench presumption is not an appropriate method of weeding out meritless lawsuits, but adopted a plausibility standard and vacated the decision.
Key Lessons: ESOP fiduciaries are not entitled to a presumption of prudence in determining whether it is prudent to purchase or hold publicly traded employer stock. However, a complaint alleging that it was imprudent for a fiduciary to hold or purchase publicly traded employer stock cannot survive at the pleadings stage in the absence of plausible allegations of special circumstances. The Supreme Court decision leaves a very narrow route for plaintiffs hoping to hold fiduciaries liable in these employer stock cases. (Image credit: Fotolia)
Key Lessons: ESOP fiduciaries are not entitled to a presumption of prudence in determining whether it is prudent to purchase or hold publicly traded employer stock. However, a complaint alleging that it was imprudent for a fiduciary to hold or purchase publicly traded employer stock cannot survive at the pleadings stage in the absence of plausible allegations of special circumstances. The Supreme Court decision leaves a very narrow route for plaintiffs hoping to hold fiduciaries liable in these employer stock cases. (Image credit: Fotolia)
6) Include contractual time limit in denial of benefits
The case: In direct contrast to earlier decisions in the 4th and 5th Circuits, the 6th Circuit recently decided that denial of benefits letters must include the time limit for submitting a claim for judicial review. In this case, the court found an employee was entitled to bring suit against Metropolitan Life Insurance after the contractual limitations period in his ERISA-governed long term disability plan had expired. The majority held that because the claim administrator failed to include the time limit for judicial review in the benefit revocation letter itself, the letter was not in substantial compliance with ERISA Section 503.
Key Lesson: Review benefit denial letters and ensure that the time limit for judicial review is enclosed, particularly if the plan has adopted a shortened time limit as allowed in last years Supreme Court case of Heimeshoff v. Hartford Life. It was not enough in this recent case that the denial letter included notice of the employees right to judicial review and the limitations period was stated in other plan documents available to participants upon request. (Image credit: Fotolia)
Key Lesson: Review benefit denial letters and ensure that the time limit for judicial review is enclosed, particularly if the plan has adopted a shortened time limit as allowed in last years Supreme Court case of Heimeshoff v. Hartford Life. It was not enough in this recent case that the denial letter included notice of the employees right to judicial review and the limitations period was stated in other plan documents available to participants upon request. (Image credit: Fotolia)
7) Once-per-year IRA rule to be applied on aggregate basis
The Case: The Tax Court rejected the IRSs long-standing interpretation of the once-per-year IRA rollover rule, holding that the rule must be applied on an IRA-aggregated basis rather than on an account-by-account basis. Under this decision, the holder of an IRA can only apply the 60-day rollover rule once in a one-year period (measured as 365 days from the date the first distribution occurred). This means that once an individual makes an IRA rollover from one IRA, he or she is precluded from making another rollover from both that IRA and from any other IRAs the individual may hold. The IRS announced that it will acquiesce to the Tax Courts decision.
Key Lesson: The IRA rollover limitation will apply on an aggregated basis, effective Jan. 1, 2015. Although the IRS announced that enforcement would be on a prospective basis, best practices indicate that an individual should wait 365 days to make a rollover after one is made in 2014. Note that IRA holders may continue to make as many trustee-to-trustee transfers between IRAs as they want. (Image credit: Fotolia)
Key Lesson: The IRA rollover limitation will apply on an aggregated basis, effective Jan. 1, 2015. Although the IRS announced that enforcement would be on a prospective basis, best practices indicate that an individual should wait 365 days to make a rollover after one is made in 2014. Note that IRA holders may continue to make as many trustee-to-trustee transfers between IRAs as they want. (Image credit: Fotolia)
8) Upcoming litigation
The U.S. Supreme Court will consider the Yard-Man inference, reviewing whether courts construing collective bargaining agreements in Labor-Management Relations Act cases should presume that silence concerning the duration of retiree health benefits means that the parties intended for those benefits to vest for life. This decision will resolve a split between the Yard-Man 6th Circuit and other circuits that have required stronger plan language to support the conclusion that retiree health benefits are vested.
Other potential issues to be addressed by the Supreme Court include the scope of Firestone deference and whether deferential judicial review applies only to benefit denials or also to suits for fiduciary breach.
Other benefits-related issues that parties are appealing to the Supreme Court, but that the Supreme Court has not yet decided to accept, include several cases challenging state prohibitions on same-sex marriage, and more challenges to the implementation of Health Care Reform. (Image credit: Fotolia)
Other potential issues to be addressed by the Supreme Court include the scope of Firestone deference and whether deferential judicial review applies only to benefit denials or also to suits for fiduciary breach.
Other benefits-related issues that parties are appealing to the Supreme Court, but that the Supreme Court has not yet decided to accept, include several cases challenging state prohibitions on same-sex marriage, and more challenges to the implementation of Health Care Reform. (Image credit: Fotolia)
