Recently, the United States District Court for the Eastern District of Wisconsin granted a Motion to Dismiss, dismissing ERISA breach of fiduciary duty claims, failure to monitor claims, and prohibited transaction claims in a putative class action involving Oshkosh Corporation’s 401(k) Plan. The plaintiff supported those claims with allegations of excessive recordkeeping fees, excessive share class fees, imprudent high-cost fund options, failure to fully disclose plan fees, and excessive provider fees. The district court relied heavily on Seventh Circuit precedent to dismiss the complaint, with prejudice, holding that it was not possible to plausibly infer violations of ERISA’s duties, under Federal Rule of Civil Procedure 12(b)(6).

Plaintiff alleged that, between 2014 and 2018, the Plan on average paid $87 per participant in recordkeeping fees which reflected a lack of prudence and poor management of the Plan. Throughout Plaintiff’s complaint, he compared the Plan’s average annual recordkeeping fee and other investment and service fees to plans for which Plaintiff alleged were of similar size and with similar amounts of money under management. Specifically, Plaintiff alleged Defendants should have paid around $40 per participant in recordkeeping fees. The Court dismissed the recordkeeping fee claim because “Plaintiff fail[ed] to state why the fee is unreasonable.” Moreover, the Court stated, “[t]he mere existence of purportedly lower fees paid by other plans says nothing about the reasonableness of the Plan’s fee, and it does not make it plausible that another recordkeeper would have offered to provide the Plan with services at a lower cost.”

Plaintiff further alleged that Defendants breached their fiduciary duties when they did not retain the share class for each fund that gives plan participants access to portfolio managers at the “lowest net fee.” Although the court acknowledged that the “net investment expense” theory is a “novel concept,” the court reasoned that Plaintiff’s claims were tantamount to an argument that Defendants were imprudent simply because they did not retain the least costly share class, a claim which the Seventh Circuit had previously rejected in another case.

Next, Plaintiff alleged that Defendants breached their fiduciary duties by retaining higher-cost actively managed investments over the less-expensive passively managed investments. Again relying on Seventh Circuit precedent, the court dismissed the claim when Plaintiff conceded he had no knowledge of Defendants’ investment selection and monitoring process and thus the court was not required to accept “unsupported conclusory factual allegations,” especially in light of the precedent that “plans may generally offer a wide range of investment options and fees without breaching any fiduciary duty.”

The Court quickly shot down Plaintiff’s claims that Defendants failed to fully disclose fees charged or credited to the Plan investments because Seventh Circuit precedent does not require a plan fiduciary to disclose information about revenue-sharing arrangements.

In addition, Plaintiff claimed that the fees paid by the Plan to its service provider were excessive and unreasonable in relation to the services provided and that Defendants did not solicit competitive bids from other service providers. The court dismissed the claim, holding that the existence of a lower-cost alternative service provider “says nothing” about Defendants’ prudence and does not make it plausible that another service provider would offer the same service at a lower cost.

The failure to monitor claims were summarily dismissed as derivative and dependent upon Plaintiff’s breach of fiduciary duty claims, which had already been dismissed. The court also dismissed Plaintiff’s prohibited transaction claims as “circular” and cited other district courts that dismissed similar claims.

The case is Albert v. Oshkosh Corporation, No. 1:20-cv-00901-WCG (E.D. Wis. Sep. 2, 2021).

 

In Sacerdote v. New York University, a class of university employees who participated in Defendant’s 403(b) plans brought ERISA breach of fiduciary duty claims against Defendant, challenging the administration of its retirement plans. The district court dismissed two claims and proceeded to a bench trial on the remainder, and ultimately found in favor of Defendant. On appeal, Plaintiffs raised, among others, questions of whether the trial judge should have been disqualified, whether Plaintiffs actually waived their jury demand, and whether the district court erred in dismissing their share-class claim alleging Defendant breached its duty of prudence by offering retail-class shares of certain mutual funds rather than institutional-class shares of the same funds that had lower costs.

The Second Circuit recently vacated the district court’s dismissal of Plaintiffs’ share-class claim. Sacerdote v. New York Univ., 2021 U.S. App. LEXIS 24252 (2d Cir. Aug. 16, 2021). To begin, the Court observed that the notion that “‘prudent fiduciaries may very well choose to offer retail class shares over institutional class shares’ because retail shares offer greater liquidity provides no basis to dismiss pleadings that otherwise generate plausible inferences of the claimed misconduct.” The Court found “[s]uch an argument ‘goes to the merits [of the case] and is misplaced at th[e] early stage’” of a motion to dismiss. The Court found important that Plaintiffs specifically alleged 63 of the funds included in the 103-fund Faculty Plan and 84-fund Medical Plan charged excessive retail-share fees. The Court observed Plaintiffs’ complaint alleged in detail that the cost differentials of specified basis points for the funds were included in the fund prospectuses and, therefore, available to the fiduciaries when making their decision, and that an adequate investigation would have revealed the readily apparent superior alternative investments. Noting that the district court’s dismissal was partly based on its finding that the fees of those 63 funds were still lower than cost ranges previously permitted by several circuits in other cases, the Court stated cost ranges from other ERISA cases should not be overrelied upon as benchmarks. The Court opined that, due to the context-specific nature of assessing each ERISA complaint, such comparisons had limited utility, and that charging “fees . . . lower than a fee found not imprudent in another case” cannot rule out the possibility of imprudence.

The Court also disagreed with the district court’s focus on whether the percentage of those 63 funds was high enough to taint each plan as a whole, noting that while a holistic assessment of the plans is relevant to a share class claim, “[f]iduciaries cannot shield themselves from liability – much less discovery – simply because the alleged imprudence inheres in fewer than all of the fund options.” Finding that “[i]f prudence of a particular investment offering will become clear only in the context of the portfolio as a whole,” a breach of the duty of prudence claim cannot be resolved on a motion to dismiss. The Court found Plaintiffs plausibly alleged it was imprudent to offer retail-class shares over institutional-class shares.

In further analysis, the Court disapproved the district court’s apparent expectation that Plaintiffs must both prove the loss and the amount of damages from a breach of fiduciary duty. The Court clarified  that, between the fiduciaries and those covered by the employee benefit plans, the burden of proof first lay upon Plaintiffs and then on the fiduciaries: “Although plaintiffs bear the burden of proving a loss, the burden under ERISA shifts to defendants to disprove any portion of potential damages by showing that the loss was not caused by the breach of fiduciary duty.”

As for Plaintiffs’ argument that they were deprived of their Seventh Amendment right to a trial by jury, the Second Circuit affirmed the district court’s decision to strike the jury demand. The Court noted that not only did Plaintiffs fail to timely oppose Defendant’s motion or provide justification for their failure, but they also failed to move for reconsideration or object at the pretrial conference, which showed Plaintiffs waived their right to a jury trial.

The Second Circuit also affirmed the entry of judgment for Defendant on the tried claims, agreeing that Defendant did not breach its fiduciary duty of prudence by failing to consolidate recordkeepers any faster than it did.  The Court further agreed that Defendant did not breach its duty of prudence by failing to remove two funds from the plans, noting they had been retained based on the strength of their performance against appropriate benchmarks.

Finally, the Court affirmed the denial of Plaintiffs’ motion for a new trial, rejecting Plaintiffs’ argument that the trial judge (Judge Forrest) was biased. Among other things, Plaintiffs alleged the chairman of the law firm that Judge Forrest rejoined after resigning from the bench a few weeks after issuing her trial findings in this case was a member of Defendant’s Board of Trustees, and that Judge Forrest would not have wished to strain her relationship with him. The Court denounced Plaintiffs’ theories as “too far-fetched,” as the chairman was but one of 61 voting Board members and more than 80 partners at the law firm, did not have a financial stake in the case, and was not even a member of Defendant’s Retirement Committee. Observing that Plaintiffs failed to raise these arguments before Judge Forrest ruled against them, the Court stated, “parties who dislike court rulings cannot later rely upon first-time assertions of tenuous, preexisting alleged conflicts of interest to avoid those rulings.”

 

Under the provisions of the Employee Retirement Income Security Act (“ERISA”) as modified by the Multiemployer Pension Plan Amendments Act of 1980 (“MPPAA”), an employer who withdraws from a multiemployer pension plan is liable for their allocable share of any underfunding. With respect to this withdrawal liability, the pension fund has potential recourse against both the withdrawing employer (generally the entity that signed the collective bargaining agreement pursuant to which fund contributions were required) as well as all other commonly owned (generally 80% or more) trades or businesses. All such “control group” members are deemed a single employer, and all are jointly and severally liable for any withdrawal liability incurred by a fellow control group member.

In addition to expanding the universal of responsible parties, the statute also endows pension funds with another powerful collection tool, Section 4212(c), MPPAA’s “evade or avoid” provision. Section 4212(c) provides that “[i]f a principal purpose of any transaction is to evade or avoid liability under this part, this part shall be applied (and liability shall be determined and collected) without regard to such transaction.”  The Third Circuit recently explored the nuances of the evade or avoid provision; at issue was a $78 million dollar withdrawal liability award by an arbitrator. Steelworkers Pension Trust v. The Renco Group, Inc., 2021 U.S. App. LEXIS 25748 (3rd Cir. Aug. 26, 2021)(“Renco”).

Renco involved the acquisition of a unionized steel business (“RG Steel”) by a substantial privately held investment holding company in March 2011. In so doing, the investment holding company assumed an obligation to contribute to the Steelworkers Pension Trust (“SPT”). By the end of 2011, RG Steel was in dire straits and desperately in need of financing. After speaking with several potential lenders, the company ultimately entered into a transaction with Cerebrus Capital Management, LP (“Cerebrus”) in January 2012. Under the Cerebrus transaction, Cerebrus loaned RG Steel $125 million in exchange for a potential 49% equity component. The equity component was originally structured as warrants (a security that gives the warrant holder the option to purchase direct ownership at a set price). However, at the last minute (and at Renco’s insistence), one-half of the equity component (or 24.5%) was changed to direct ownership in the form of membership units (the equivalent of a share of stock in a corporation). Less than 5 months later (on May 31, 2012), RG Steel filed for bankruptcy under Chapter 11 of the Bankruptcy Code, permanently ceased operations and withdrew from SPT. Since this resulted in the discharge of SPT’s withdrawal liability claim against RG Steel, SPT sued Renco and other control group members.

The basis of Renco’s defense was that it owned less than the requisite 80% on the May 31, 2012 withdrawal date and therefore was not liable as a member of RG Steel’s control group. SPT countered by invoking 4212(c), arguing that a principal purpose of the Cerebrus transaction (which resulted in the transfer of a 24.5% equity interest in RG Steel) was to evade or avoid Renco incurring withdrawal liability and it should therefore be ignored.

The arbitrator, the United States District Court for the Western District of Pennsylvania, and ultimately the United States Court of Appeals for the Third Circuit all agreed with SPT. All of these forums found the last-minute change resulting in a direct transfer of 24.5% of equity at Renco’s insistence highly indicative of an evade or avoid motive. This was coupled with a statement by Renco’s counsel that the sole purpose for the direct equity transfer was a desire to have Renco cleanly exit the RG Steel control group. As this would result in Renco potentially avoiding a very large projected amount of withdrawal liability to the Fund, the arbitrator determined (and both courts agreed) that a principal purpose of the Cerebrus transaction was for Renco to evade or avoid withdrawal liability.

What are the takeaways from Renco? First and foremost, it reiterates the maxim that “timing is everything.” Although not explicitly stated, the timing of the Cerebrus transaction (which preceded RG Steel’s bankruptcy filing/withdrawal by less than 5 months) was highly indicative of the requisite “evade or avoid” motive. Most pension funds are already highly suspicious of activities (such as transfers of equity interests and assets that purport to alter control group membership) that closely precede a withdrawal.  Renco can be expected to encourage and expand this scrutiny. Renco also reminds us that a transaction can (and often does) have more than one principal purpose, and that only one such purpose need have an evasive motive to trigger the application of Section 4212(c).

Please contact the author if you have any questions regarding withdrawal liability.

Recently,  the United States District Court for the Western District of Pennsylvania granted a Motion to Dismiss, dismissing ERISA breach of fiduciary duty claims based on excessive recordkeeping fee allegations. The district court addressed the level of detail plaintiffs must provide to move an ERISA breach of fiduciary duty recordkeeping fee allegation from possible to plausible under Federal Rule of Civil Procedure 12(b)(6).

In Henrena Johnson and Barbara Demps v. The PNC Financial Services Group, Inc., The PNC Financial Services Group, Inc. Incentive Savings Plan Administrative Committee, Plaintiffs were former PNC employees and 401(k) plan (“the Plan”) participants. On behalf of a putative class, Plaintiffs alleged that Defendant’s Administrative Committee fiduciaries improperly allowed the Plan to pay excessive administrative fees to Co-Defendant, The PNC Financial Services Group, Inc., from 2014-2018, for recordkeeping services. Plaintiffs claimed Defendants breached their fiduciary duties of prudence and loyalty.

Plaintiffs argued the increase in administrative fees from $85 to $90 per participant over four years reflected a lack of prudence and poor management of the Plan. Plaintiffs specifically compared the Plan’s $51-$57 annual recordkeeping fee (which was the majority of the administrative fee) with the average recordkeeping fee of $35 for smaller plans reported in The 401k Averages Book. Despite the downward trend of recordkeeping fees, Plaintiffs argued the Plan should have leveraged its size to obtain recordkeeping fees of $14-$21 per participant, per year. Plaintiffs also claimed the Administrative Committee failed to engage in a comparison or benchmarking of these fees.

The court reasoned that a “high fee may reflect imprudence even if the fee falls year-over-year, [but] the fact that the Plan’s recordkeeping fees trend downward for the period at issue points in the direction of prudence rather than imprudence.” Moreover, Plaintiffs compared the direct administrative fees and did not account for revenue sharing or indirect administrative fees paid by smaller plans. Indeed, when revenue sharing was considered, smaller plans typically paid significantly higher administrative fees per-participant. Thus, the court concluded that without additional detailed factual averments as to the Plan’s fee structure and services received in exchange for the fees charged, Plaintiffs’ allegations only raised a possibility of imprudence, insufficient to state a plausible claim for breach of fiduciary duty.

As to the claim of a breach of the duty of loyalty, the district court held that Plaintiffs had to offer more facts than their purported breach of prudence claims, recast as a loyalty claim. Plaintiffs merely pointed to the excessive administrative fees paid to The PNC Financial Services Group, Inc., arguing that because of the intertwined corporate relationships, this constituted a conflict of interest. Again, the court was unpersuaded and held the allegations stopped short of articulating a plausible claim, explaining that a valid claim must allege “something more” than a purported potential conflict of interest. Plaintiffs’ allegations permitted a reasonable inference that PNC received an incidental benefit, but that alone did not establish a plausible claim for breach of loyalty.

Count II (Failure to Monitor The Plan) and Count III (Participation in the Breach of Fiduciary Duty) were summarily dismissed as derivative and dependent upon Plaintiffs’ breach of fiduciary duty claim. The district court held these derivative Counts were untenable because the underlying breach of fiduciary duty claim was dismissed. The court granted leave to amend the Complaint in response to the Order, noting that the court’s order would convert to a dismissal with prejudice if no amendment was filed on or before August 17, 2021.

The case is Johnson v. The PNC Financial Services Group, Inc., The PNC Financial Services Group, Inc. Incentive Savings Plan Administrative Committee, No. 2:20-01493-CCW (W.D. Pa. Aug. 3, 2021).

The Seventh Circuit ruled recently that ERISA does not preempt certain state law claims against directors and officers because ERISA’s text and purpose contemplate parallel corporate state-law liability against executives who act as “dual hat” fiduciaries.

In Halperin v. Richards, Plaintiffs were co-trustees of a Chapter 11 liquidating trust for Appvion, a paper company that filed for bankruptcy protection in 2017. Plaintiffs were given authority to pursue corporate law claims on Appvion’s behalf. Plaintiffs alleged that, while Appvion was in a financial freefall from 2012 to 2016, Appvion’s executives fraudulently misrepresented the company’s financial projections to inflate the company’s stock value, which was entirely owned by Appvion’s ERISA-covered Employee Stock Ownership Plan (the “Plan”). Allegedly, the inflated stock value lined the pockets of Appvion’s directors and officers whose salaries were tied to the stock’s valuation. Plaintiffs also alleged that this fraudulent scheme was aided and abetted by the Plan’s Trust Company (the Plan Trustee) and the Trustee’s retained independent appraiser, hired because of its expertise in stock valuation.

Plaintiffs brought state law claims against Appvion’s executives for breaching their corporate fiduciary duties and against the Trust Company and its retained independent appraiser for aiding and abetting those state law breaches. In the district court, all Defendants successfully moved to dismiss these state-law claims. They argued that their roles in the Plan’s valuations were governed by ERISA and that ERISA preempted all state corporate-law liability arising from the valuation process.

Plaintiffs appealed the district court’s motion to dismiss preemption ruling to the Seventh Circuit. The issue before the Court was whether Plaintiffs’ state law claims were preempted under ERISA, which preempts “any and all state laws insofar as they may now or hereafter relate to any employee benefit plan” covered by ERISA.

The Seventh Circuit reversed the dismissal against the executives but affirmed the dismissal against the Trust Company and its independent appraiser. The Court reasoned that ERISA did not preempt state law corporate claims against executives who serve dual roles as both corporate fiduciaries and ERISA fiduciaries because such state claims did not interfere with how Congress intended ERISA fiduciary duties to operate: Despite ERISA’s cornerstone “exclusive benefit rule” (an exclusive duty of loyalty causing fiduciaries to act solely in the interest of ERISA beneficiaries), ERISA explicitly allows for individuals to serve as corporate insiders and ERISA fiduciaries and, therefore, contemplates parallel state-law liability against executives wearing these “dual hats.” Also important to the Panel was the concept that as to these state-law claims, Plaintiffs were not circumventing ERISA’s remedial scheme. As to these claims, these Plaintiffs have no rights to bring ERISA claims as participants, fiduciaries, and/or beneficiaries, making ERISA preemption inappropriate because it would leave Plaintiffs without a remedy. However, unlike the Defendant dual-hat executives, ERISA does not contemplate single-hat fiduciaries (e.g., the Trustee) owing other duties of loyalty to a corporation. Accordingly, the Court affirmed dismissal of the state law claims against the Trust Company.

The exclusive benefit rule’s preemptive force also protected the Trust Company’s retained independent appraiser against state-law liability. Since the appraiser was not a fiduciary under ERISA, it was not subject to the exclusive benefit rule. Still, the Court found that imposing additional state law liability on the appraiser would hinder the Trust Company’s single-hat duties – the ability to hire experts whose opinions were not swayed by the acts of corporate executives. The Court also found that the appraiser still owed federal-law obligations under ERISA when serving as the Trust Company’s contractor and that such obligations should not be muddled with potentially conflicting state-law obligations to the corporation. Finally, state law liability against the contractor could conflict with ERISA’s remedial limits against non-fiduciaries – a cause of action for equitable relief available when brought only by the Secretary of Labor.

The case is Halperin v. Richards, __ F.4th __, 2021 U.S. App. LEXIS 22348, 2021 WL 3184305 (7th Cir., No. 20-2793, July 28, 2021).

As a general rule, an asset purchaser does not assume the seller’s liabilities, including its ERISA obligations. Courts, however, have formulated an exception to this general rule via the doctrine of successor liability.  Successor liability is an equitable doctrine requiring a court to “strike a proper balance between on the one hand preventing wrongdoers from escaping liability and on the other hand facilitating the transfer of corporate assets to their most valuable uses. EEOC v. Vucitech, 842 F.2d 936, 944-45 (7th Cir. 1988).

The doctrine was first applied to labor law obligations, and then to employment law claims.  Eventually, its reach was expanded to ERISA obligations, in the form of employer withdrawal liability and contribution delinquencies.  Successor liability provides multiemployer funds with a potential second collection target, namely a successor, provided that certain continuity and notice requirements are satisfied.  Indeed, as the Seventh Circuit has stated, “a second chance is precisely the point of successor liability.” Chicago Truck Drivers, Helpers and Warehouse Workers Union Pension Fund v. Tasemkin, Inc., 59 F.3d 48, 51 (7th Cir. 1995). Many funds have used this to their advantage by aggressively (often successfully) pursuing claims against putative successors.

However, this federal common law doctrine is not an independent cause of action, as illustrated in E. Cent. Illinois Pipe Trades Health & Welfare Fund v. Prather Plumbing & Heating, Inc.,  No. 20-2525, 2021 U.S. App. LEXIS 20083 (7th Cir. July 7, 2021) (“Prather Plumbing”), which involved father-son plumbing businesses. The father’s business was unionized, and owed two multiemployer funds almost $300,000, collectively. After working for his father’s plumbing company, the son then started his own plumbing business using approximately $25,000 worth of equipment purchased from his father’s company. The son’s business also hired some of his father’s former employees and serviced some of his father’s former clients. Not surprisingly, when the father’s business closed at the same time as his son’s was being formed, the funds sought to collect from the son’s company on a theory of successor liability.

The district court granted summary judgment for the defendant on equitable grounds, reasoning that a $25,000 acquisition leading to a $300,000 liability would have been patently unfair. The  appellate court, however, vacated and remanded, on jurisdictional grounds. The Seventh Circuit found that a claim for successor liability, a federal common law doctrine, was not a cause of action arising under federal law.  As a result,  it was insufficient to establish federal question jurisdiction within the meaning of 28 U.S.C. § 1331.

The Seventh Circuit reiterated that federal courts are courts of limited jurisdiction; they can “exercise judicial power only over those categories of Cases and Controversies authorized in the Constitution and by Congress.” Congress has implemented this jurisdictional authority via the federal question jurisdiction statute: 28 U.S.C. § 1331. This provision confers jurisdiction over federal questions: the “district courts shall have original jurisdiction of all civil actions arising under the Constitution, laws, or treaties of the United States.”

In Prather Plumbing, the funds argued that their successor liability claim by definition arose under federal law. After all, a claim arising under federal common law “necessarily presents a federal question.” The Seventh Circuit, however, disagreed.

The Court observed that absent circumstances not present, “a case arises under federal law when federal law creates the cause of action asserted.” Prather Plumbing, 2021 U.S. App. LEXIS 20083, at *8-*9 (quoting Gunn v. Minton, 568 U.S. 251, 257 (2013)). In the absence of such a federal cause of action, § 1331 is not satisfied and the court lacks jurisdiction.

Applying these principles, the Court held that the successor liability claim was not a federal cause of action. Id. at *15-*16 (relying on Peacock v. Thomas, 516 U.S. 349 (1996) (action to pierce corporate veil and collect from corporate officer for ERISA judgment against defunct corporation was not a cause of action under ERISA or any other federal statute)). Accordingly, without any federal statutory right of action for successor liability (under ERISA or otherwise), the claim did not arise under federal law and the Court therefore lacked subject matter jurisdiction.

Prather Plumbing demonstrates the procedural and jurisdictional complexities that arise in suits asserting successor liability claims. The case also highlights the risks associated with multiemployer funds desperate to connect the dots between union employers, their successors, and non-union employers, as well as the importance of buyers carefully considering the reach of these funds in M&A transactions.

Contact the authors if you have any question about successor liability or multiemployer benefit funds.

American Airlines, Inc. and its affiliated credit union recently defeated an appeal challenging a low-yield investment option in the airline’s 401(k) plan when the Fifth Circuit ruled that the plan participants lacked Article III standing to bring their ERISA claims.

In 2016, the plaintiffs filed suit on behalf of a putative class of nearly 20,000 American Airlines 401(k) plan participants who invested money in American’s Federal Credit Union Option (FCU Option), a demand deposit fund offered under the plan. The plan participants argued, among other things, that American and its Asset Administrative Committee breached their fiduciary duties and engaged in prohibited transactions by selecting and retaining the FCU Option instead of a stable value fund. The plaintiffs’ claims were primarily based on the higher interest rate available from stable value funds, disregarding the increased investment risk of the stable value funds relative to the FCU Option, and that stable value funds would not have had the government-backed guarantee. The participants also brought a claim against FCU, alleging that it breached its fiduciary duty of loyalty by improperly benefitting from the allegedly unreasonable rate of return for the FCU Option.

The Fifth Circuit affirmed the district court’s conclusion that the plaintiffs lacked standing to assert their breach of fiduciary duty claims against American and its Asset Administrative Committee. In so holding, the Fifth Circuit observed that although the plan eventually began offering a stable value fund—the plaintiffs’ preferred type of capital preservation investment—the participants never invested in this option. For that reason, the appellate court concluded that the participants failed to show that the challenged acts of the defendants caused their injury because they “would not have invested in a stable value fund in a counterfactual world since they did not place their money in one when given the opportunity to do so.”

Regarding the plaintiffs’ breach of loyalty claim against FCU, the three-judge panel reversed the district court’s decision that the plan participants had standing to sue FCU, once again concluding that the plaintiffs failed to show causation. Specifically, the court adopted FCU’s contention that there was “no connection between any alleged losses to the plan” and “the statutory claim against FCU.” The appellate court held that the plaintiffs lacked standing to accuse FCU of improperly using the plan assets held by the FCU Option for its own benefit because the plaintiffs presented no evidence “demonstrating that investors in FCU funds other than the FCU Option received higher interest rates generated by investments of Plan assets.”

The case is Ortiz v. Am. Airlines, Inc., No. 20-10817 (5th Cir. July 19, 2021).

 

On July 16, 2021, the District Court for the Western District of Wisconsin dismissed without prejudice four ERISA claims brought by a former employee alleging mismanagement of Infinity’s defined-contribution 401(k) plan. Plaintiff’s two Fair Labor Standards Act claims were not at issue and remain pending.

Plaintiff alleged that plan fiduciaries violated their fiduciary duties by offering allegedly imprudent, actively managed investment options, and by paying excessive administrative and recordkeeping fees. The court found that plaintiff lacked standing to assert her ERISA claims for two main reasons.

First, plaintiff included a list of the allegedly imprudent funds in her complaint, but Infinity provided evidence that all of her retirement assets were invested in a fund that was not included on the list. Because standing is a question of subject-matter jurisdiction, the court permitted evidence outside the complaint. The court went on to hold that because Infinity’s evidence regarding plaintiff’s investments called her standing into question, the burden shifted to plaintiff to adduce competent proof that standing existed. The court then held that plaintiff failed to meet that burden because she offered no proof that she was injured.

Second, with respect to plaintiff’s excessive fee argument, Infinity provided evidence that the one fund in which plaintiff invested did not pay any recordkeeping fees. The court noted that to survive a motion to dismiss her fee claims, plaintiff needed to provide competent proof that she paid recordkeeping fees. Plaintiff failed to satisfy this burden with mere speculation and reliance on the allegations in her complaint.

The case is Lange v. Infinity Healthcare Physicians, S.C., 20-cv-737-jdp (W.D. Wis. July 16, 2021).

The Supreme Court recently granted the writ of certiorari requested by Northwestern University retirement plan participants, following the Solicitor General’s plea for the Court to hear the case.  Hughes v. Northwestern Univ., No. 19-1401, 2021 U.S. LEXIS 3583 (July 2, 2021). The certiorari petition phrased the question presented as: “[w]hether allegations that a defined-contribution retirement plan paid or charged its participants fees that substantially exceeded fees for alternative available investment products or services are sufficient to state a claim against plan fiduciaries for breach of the duty of prudence under ERISA.”

In Hughes, the plan participant-plaintiffs alleged that Northwestern breached the duty of prudence by (1) paying excessive recordkeeping fees (by using multiple recordkeepers and allowing recordkeeping fees to be paid through revenue sharing) and (2) offering mutual funds with excessive investment management fees.

The district court granted defendants’ motion to dismiss, and the Seventh Circuit affirmed. Finding no ERISA violation with respect to Northwestern’s recordkeeping arrangement, the Seventh Circuit noted that ERISA does not require a sole recordkeeper, and there is “nothing wrong – for ERISA purposes – with plan participants paying recordkeeper costs through expense ratios” under a revenue sharing agreement.

As for the excessive investment management fee claim, the Seventh Circuit concluded that the types of funds plaintiffs wanted (low-cost index funds) were and are available to them, thus “eliminating any claim that plan participants were forced to stomach an unappetizing menu.” The Seventh Circuit emphasized that Northwestern had provided the plans “with a wide range of investment options” and offered “prudent explanations for the challenged fiduciary decisions.”

The Solicitor General argued that the Seventh Circuit’s decision is incorrect and that its decision conflicts with decisions in the Third and Eighth Circuits. Northwestern argued no circuit conflict exists; instead the circuits “simply reached different results on different complaints.”

The Supreme Court’s order granting the writ of certiorari noted that Justice Barrett took no part in the consideration of this petition. Justice Barrett did not participate because she was a judge on the Seventh Circuit at the time the Seventh Circuit issued its decision. Regardless how the Supreme Court ultimately rules in this case, it is certain to have a significant impact on the more than 127 retirement plan fee class actions that have been filed since January 2020.

In Bellon v. PPG Emp. Life & Other Benefits Plan, PPG Industries, Inc. & the PPG Plan Administrator, the Northern District of West Virginia recently addressed whether a predecessor company may be held liable for a decision made by its corporate successor to terminate retiree life insurance coverage and related benefits following spin-off.

The retiree plaintiffs asserted that company-provided life insurance coverage was wrongly terminated after their former employer, defendant PPG, spun off its commodity chemicals division (to which they once belonged) into a separate public entity called Axiall Corp. Axiall assumed responsibility for certain benefits of PPG’s retirees and later terminated those benefits.

Rejecting that argument, the court granted summary judgment for defendant employer, PPG, its plan, and the plan administrator on all counts, finding plaintiffs’ claims for benefits, discrimination, interference, breach of fiduciary duty, refusal to furnish information, and common law breach of contract failed as a matter of law.

In so holding, the court recognized that taking necessary steps to complete a business transaction—here, predecessor PPG transferring benefits liabilities for its commodity chemicals division to a separate, newly created successor entity, Axiall Corp.—does not trigger PPG’s general fiduciary duties under ERISA, nor create liability for PPG where the terminated benefits were unvested, and where PPG was no longer associated with the plan.

The court also recognized that defendants could not be liable to retiree plaintiffs and their surviving spouses for benefits because defendants were not responsible for the benefits termination decision (the successor Axiall Corp. was) and plaintiffs were not participants in PPG’s plan when their retiree benefits terminated (they were participants in Axiall’s plan).

The court likewise rejected retiree plaintiffs’ arguments that their life insurance benefits vested under predecessor PPG’s plan so they could not be transferred or terminated, reiterating that an employer’s commitment to vest benefits must be stated in clear and express plan language.  Accordingly, the court found that plan language stating only that, “[t]his coverage is provided by the Company” could not establish a promise of lifetime benefits provided by the predecessor.

In denying plaintiffs’ claims, the court also reaffirmed that ERISA does not prohibit an employer from terminating or modifying benefits not vested nor does it prevent an employer from pursuing its business interests as employer when not administering the plan or making investments.

The case is Bellon et al. v. PPG Emp. Life & Other Benefits Plan, PPG Industries, Inc. & the PPG Plan Administrator, No. 5:18-cv-00114 (N.D. W.Va. June 28, 2021).