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Showing 7 posts in ERISA.

Supreme Court Confirms Standards for ERISA’s Church Plan Exception

In a clear win for religiously-affiliated employers, including hospital systems and educational institutions, a unanimous Supreme Court found that a statutory exception to ERISA’s requirements for “church plans” applies to plans that are maintained by tax-exempt entities affiliated with churches in Advocate Health Care Network v. Stapleton. More ›

Plan Language Defeats ERISA Claims

An employee was severely injured while on the job and was placed on leave by his employer. The employee filed a claim for workers' compensation and continued to participate in the employer's group medical plan under which he incurred substantial medical claims. A new entity then acquired the employer and became the plan administrator of the medical plan under which the employee was covered. After three years, the employer asked the employee to submit a letter proving his ability to come back to work or face termination. The employee did not submit such letter and was terminated from employment. Subsequently, his coverage under the employer's group medical plan was terminated. The employee then filed suit for benefits and breach of fiduciary duty under ERISA. The district court dismissed the claim, which the Seventh Circuit upheld because the employee did not allege that the terms of the plan provided the employee with a right to continued benefits post-employment, and the employer's offering of long-term disability insurance did not suggest the employee was entitled to benefits post-employment. With respect to the breach of fiduciary claim, the court held that the employer was acting as the employer when it terminated the employee and not in its capacity as a fiduciary of the plan. This case demonstrates the importance of ensuring that group medical plan documents clearly state what benefits an employee is entitled to post-termination.

For more information read Brooks v. Pactiv Corp., No. 12-1155 (7th Cir. Sept. 6, 2013).

Seventh Circuit Upholds Arbitrator’s Reduction of Withdrawal Liability

An arbitrator's decision to significantly reduce the amount of withdrawal liability assessed against an employer that had withdrawn from a multiemployer pension plan was affirmed in a recent opinion from the Seventh Circuit. More ›

Pension Plan Administrators did not Breach Fiduciary Duty, Despite Allegation of Excessive Investment Fees

Participants in an employer-sponsored defined contribution pension plan sued their employer, alleging that the plan administrators violated their fiduciary duties under the Employee Retirement Income Security Act (ERISA) by paying excessive fees to investment advisors and requiring plan participants to pay the cost of mutual fund fees instead of having the fees paid by the plan. The district court dismissed both ERISA claims. The U.S. Court of Appeals for the Seventh Circuit affirmed, holding that nothing under ERISA required the plan administrators to find and offer the cheapest possible funds. With regard to the second claim, the Seventh Circuit held that no fiduciary duty was breached by requiring the participants to pay for advisor fees instead of having them paid for by the plan. ERISA does not impose a duty on employers to contribute to employee benefit plans at a certain level and, in determining the contribution an employer chooses to make, the employer may act in its own interests. This case is another important decision in favor of qualified retirement plans and plan administrators. However, as other courts have found in favor of plan participants in similar cases, plan administrators should be mindful of the competitiveness of the fees charged and ultimately borne by plan participants.

Loomis v. Exelon Corp., No. 09-4081 & No. 10-1755 (7th Cir. Sep. 6, 2011)

Plan Fiduciaries Entitled to a Presumption of Reasonableness in Employer Stock Drop Cases

Continuing a long string of rulings in employer “stock drop” litigation, the U.S. Court of Appeals for the Second Circuit found that a fiduciary in an Employee Retirement Income Security Act (ERISA) retirement plan was entitled to a “presumption of reasonableness” in continuing to offer plan participants the option to invest in employer stock. Plaintiffs were a putative class of participants in a 401(k) plan sponsored by a large bank. The employer (which was also the plan sponsor for the 401(k) plan) maintained an administrative committee to operate the plan and an investment committee to choose which investments would be available to plan participants.One of the investment options offered to participants was a fund designed to invest in the common stock of the employer/plan sponsor. During the financial crisis of 2007-2009, the stock price of the employer dropped significantly. Plaintiffs sued, alleging that the plan sponsor and the committees administering the plan had breached their respective fiduciary duties by continuing to allow the stock fund to be an investment option. The Second Circuit, adopting the standard used in Moench v. Robertson, 62 F.3d 553 (3d Cir. 1995), held that the plan’s fiduciaries were entitled to a presumption that offering the employer’s stock fund as an investment option under the plan was reasonable. The Moench standard presumes that a plan fiduciary’s investment decisions are prudent, a presumption that may be rebutted by showing that the fiduciary had abused its discretion. Absent evidence of such an abuse of discretion, a plaintiff’s claim of a fiduciary breach cannot survive a motion to dismiss. A companion case issued the same date reached a similar conclusion. Plan fiduciaries should regularly document their actions to protect against claims that they have acted imprudently.

In re Citigroup ERISA Litigation (Gray v. Citigroup Inc.), No. 09-3804 (2nd Cir. Oct. 19, 2011);

Gearren v. McGraw-Hill Cos., No. 10-792 (2nd Cir. Oct. 19, 2011)

Employer Precluded from Making Unilateral Change to Retirees’ Benefits

An employer entered into a collective bargaining agreement (CBA) with a group of unionized employees. The CBA provided for retiree health coverage for retired union employees for the CBA’s duration. It also required the employer to create a voluntary employee benefit association (VEBA) trust and provided that upon the exhaustion of the funds in the VEBA, the employer could charge the retirees the cost of their retiree health coverage. Upon the CBA’s expiration, the employer unilaterally changed the retiree health coverage previously regulated under the expired CBA. The union, on behalf of a class of several hundred retirees, sued under Section 502(a) of the Employee Retirement Income Security Act (ERISA) and Section 301 of the Labor Management Relations Act (LMRA), seeking a permanent injunction preventing the employer from making any unilateral changes to retiree health coverage and an award for benefits that would have been received without the employer’s changes. The U.S. Court of Appeals for the Fourth Circuit found that it was the joint intent of the employer and the union that retiree health insurance benefits could not be unilaterally changed by the employer after the governing CBA’s expiration. The Fourth Circuit interpreted the CBA as a whole to find that the inclusion of both the VEBA provision and a provision governing the exhaustion of the funds in the VEBA (which was not projected to occur until six years after the expiration of the three-year CBA) demonstrated the parties’ joint intent to continue to impose the obligation to provide retiree health benefits. The lack of durational limit of coverage was also noted. Employers entering into CBAs covering retiree health benefits should ensure that the language governing the duration of coverage of retiree health is clear and concise when read in conjunction with the entire CBA.

U.S. Supreme Court Reinstates Army Reservist’s “Cat’s Paw” Bias Claim Under USERRA

A group of employees who participated in their employer’s 401(k) plan invested a portion of their account in their employer’s stock. They sued their employer under the Employee Retirement Income and Security Act (ERISA) when the price of their employer’s stock dropped. The employees alleged that their employer had failed to disclose sufficient information about a bad business transaction that the employer had entered into and to monitor the conduct of the plan fiduciaries. Initially, the U.S. Court of Appeals for the Seventh Circuit dismissed a claim of an employee bringing suit who had previously signed a severance agreement with the employer waiving all claims against the employer, including those under ERISA. The employee argued that he could still pursue his claim against under the plan because ERISA prohibited plan fiduciaries from being released from their fiduciary responsibilities. The court held that nothing in ERISA prohibits a fiduciary from obtaining a release for potential claims that had already accrued. It went on to find that the fiduciaries did not violate ERISA in initially selecting their own stock as an investment option under the plan because: (1) the fund was one of many among which the participants could choose; (2) the plan repeatedly warned against the risk of not diversifying their investment choices; and (3) the employer’s stock had never performed badly enough to make it an imprudent investment choice. Additionally, the court held the employer and plan fiduciaries were protected under the “safe harbor” provision of Section 404(c) of ERISA against the employee’s claims that the employer had failed to disclose information about certain business decisions and to monitor plan fiduciaries. The Section 404(c) safe harbor provision provides protection for plan fiduciaries in certain instances where participants direct the investment of their accounts in a 401(k) plan. The purpose of the Section 404(c) safe harbor provision is to relieve the fiduciary of responsibility for choices made by someone beyond its control. The court held that the plan fiduciaries had no duty to provide plan participants with real time updates on business decisions or to review all business decisions of the company. Based on the court’s findings in these cases, employers should ensure they are in compliance with Section 404(c) of ERISA, as it provides protection to 401(k) plan sponsors if their fiduciary decisions are questioned. However, they should be aware that Section 404(c) does not provide protection for the initial fund selection. Additionally, employers should ensure that all severance agreements are well-drafted.

Howell v. Motorola, Inc., Case No. 07-3837 (7th Cir. Jan. 21, 2011)
Lingis v. Dorazil, Case No. 09-2796 (7th Cir. Jan. 21, 2011)

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