The Eastern District of Missouri recently examined whether administrative exhaustion is a prerequisite to an ERISA suit alleging a wrongful denial of employee benefits, where the benefit plan’s language did not include an administrative appeal procedure and the denial letter included only permissive language stating that the claimant “may request a review” of the denial.

Ultimately, the Court focused on the Eighth Circuit’s “sound policy of not wanting courts to review plan administrators’ decisions based on initial, often succinct denial letters in the absence of complete records” and dismissed (without prejudice) the suit for failure to exhaust administrative remedies.

The Court examined and combined two lines of cases. First, as long as the plan offers a “reasonable opportunity” for a “full and fair review” of the denial, and the claimant has notice of the procedure, exhaustion of contractual remedies is required, even if neither the plan, the insurance contract, nor the denial letter explicitly describe the review procedure as a prerequisite to suit. Under the second line of cases, language informing the claimant that an administrative claim may be pursued, as opposed to language stating the administrative claim must be pursued, does not excuse the claimant from administrative exhaustion.

The Court emphasized the practical reasons favoring exhaustion mean that “claimants with notice of an available review procedure should know that they must take advantage of that procedure if they wish to bring wrongful benefit denial claims to court.” Thus, the Plaintiff was required to exhaust the administrative remedy described in permissive terms in the denial letter, even though there was no administrative appeal provision in the plan.

The case is Yates v. Symetra Life Ins Co., No. 19-cv-154 (E.D. Mo. May 26, 2021).

The District Court of Minnesota declined to certify a class of pensioners seeking to challenge their plan’s early retirement calculations. ERISA requires early retirement benefits to be actuarially equivalent to what participants would receive at their normal retirement age. For participants collecting retirement benefits before age 65 (known as the “Early Commencement Factor” or “ECF”), the plan required a reduction of their monthly benefit, expressed as a percentage of the normal benefit that the participant would have received had they retired at age 65.

The plaintiffs contended that the ECF resulted in benefits that were not actuarially equivalent to the retirement benefits they would have received at their normal retirement age. The plaintiffs sought a retroactive amendment to the plan which would provide class members with the greater of either an actuarially equivalent benefit to their age-65 ECF or their current benefit. In support, the plaintiffs proposed that the court adopt their expert’s alternative actuarial models.

The court concluded that the plaintiffs’ alternative actuarial models proved “unworkable” under FRCP 23 because not all putative class members would benefit from any single model. In other words, under some of the plaintiffs’ proposed models, some putative class members would receive higher benefits while other class members would receive less. Moreover, the plaintiffs’ expert also conceded that at least 251 class members currently received actuarially equivalent benefits, which meant they were not injured by the plan and therefore lacked standing.

The court held that these inconsistencies meant that plaintiffs’ claims were not amenable to class-wide resolution. The case is Thorne v. U.S. Bancorp, No. 18-cv-3405 (D. Minn. May 18, 2021).

The Third Circuit will review a Pennsylvania district court’s decision to certify a 60,000+ person class in an ERISA fiduciary breach lawsuit claiming mismanagement of a defined contribution plan’s investments and recordkeeping fees. This appeal queues up guidance on a hotly litigated issue in recent ERISA cases:  can defined contribution plan participants challenge the prudence and loyalty of retaining a plan investment option they never invested in? For example, in Boley, the named plaintiffs collectively invested in only seven of the plan’s investments, but their lawsuit challenges all 37 investment options in the plan’s portfolio at various points in the putative class period.

This issue has been recently litigated in the context of a motion to dismiss for lack of standing. The Supreme Court held in Thole v. U.S. Bank N.A. that defined benefit plan participants do not have standing to pursue a claim that the plan’s fiduciaries mismanaged the plan if they did not suffer a loss. Based on Thole, defendants have argued that defined contribution plan participants similarly lack standing when challenging investments in which they did not invest because they could not have suffered a loss.

The district court in Boley rejected that argument in 2020. The defendants then raised a similar challenge to oppose class certification, arguing that plaintiffs’ claim failed to meet FRCP 23’s typicality standards because the named plaintiffs suffered no injury with respect to the performance or fees of the 30 investment options in which they did not invest. The district court disagreed, finding that plaintiffs’ mismanagement claims challenge uniform conduct across the plan.  Defendants sought immediate review of class certification under FRCP 23(f), and the Third Circuit granted the request.

That the Third Circuit granted the defendants’ request is significant, especially in light of the rash of similar lawsuits pending in the district courts and heading towards motions for class certification. Recent statistics indicate that, in about half of the 23(f) petitions filed by defendants that were granted by the Third Circuit, class certification was reversed. See Bryan Lammon, An Empirical Study of Class-Action Appeals (April 30, 2020) available at SSRN: The Jackson Lewis ERISA Complex  Litigation Group  is closely monitoring this appeal.

The referenced decisions are: Boley v. Universal Health Servs., No. 20-2644, 2021 U.S. Dist. LEXIS 42257 (E.D. Pa. Mar. 8, 2021); Boley v. Universal Health Servs., 2020 U.S. Dist. LEXIS 202565, 2020 WL 6381395 (E.D. Pa. Oct. 30, 2020); Boley v. Universal Health Servs., No. 21-8014, Dkt. 12-1 (3rd Cir. May 18, 2021); Thole v. U.S. Bank N.A., 140 S. Ct. 1615 (2020).

Recently, in Davis v., a California district court dismissed for the second time claims alleging that the defendant 401(k) plan fiduciaries breached their ERISA fiduciary duties by retaining overpriced and underperforming investment options on the plan’s investment menu. Our previous post on that dismissal is available here.

That decision is one in a deluge of similar, recent rulings setting forth differing and sometimes discordant opinions on what is required to state a plausible ERISA fiduciary breach claim challenging defined contribution plan investment menus and recordkeeping fees.  Some, like, have declined plaintiffs’ invitation to second-guess ERISA fiduciaries’ decision-making and have dismissed the claims on the grounds that allegations that cheaper or better performing, but dissimilar investments were available on the market does not raise an inference that the fiduciaries breached any fiduciary duty by retaining the plan’s investments.  Other courts have sustained the claims, allowing plaintiffs to seek discovery on the fiduciaries’ processes for selecting investment options and service providers.

Although the majority of Circuit courts that have addressed these issues have affirmed dismissal,  some have reversed dismissal and remanded for further consideration.  Thus, the noticed appeal in joins the list of anticipated decisions that could provide clarity on this issue. The Second Circuit is queued to address similar issues in Cunningham v. Cornell University, et al. and Sacerdote v. New York University, and the U.S. Supreme Court has requested the views of the Acting Solicitor General on the pending petition for certiorari of the Seventh Circuit’s decision in Hughes v. Northwestern University.  Jackson Lewis’ ERISA Complex Litigation Group is closely monitoring these matters.

The referenced cases are: Davis v., Inc., No. 20-cv-01753 (N.D. Cal.); Cunningham v. Cornell University, et al., No. 21-88 (2d Cir.);  Sacerdote v. New York University, No. 18-2707-cv (2d Cir.); and Hughes v. Northwestern University, et al., No. 19-1401 (U.S.).

The Northern District of California dismissed with prejudice a lawsuit alleging a 401(k) plan’s sponsor and fiduciaries included unreasonably expensive funds in the plan’s investment lineup.  The court previously dismissed the plaintiffs’ claims without prejudice, finding their complaint failed to plead facts from which the court could infer the defendants breached their fiduciary duties.  In response, the plaintiffs filed an amended complaint.  The court held that the plaintiffs’ amended complaint suffered from the same infirmities as their initial complaint and dismissed the case again.

In particular, the court rejected the plaintiffs’ reliance on an industry publication’s calculation of median fees charged by a few plan funds because the data amalgamated fees charged by funds with disparate characteristics.  Thus, the court held the median fees were not an apt comparator for the fees charged by the specific challenged funds.  Similarly, the court nixed the plaintiffs’ comparison of actively managed funds to passively managed funds because the two types of funds “have different aims, different risks, and different potential rewards that cater to different investors.”  Finally, the court dismissed the plaintiffs’ claim that the plan should have offered less expensive share classes of some plan funds.  The court found unavailing comparisons between the less expensive share classes and those included in the plan because while the fees charged by the plan funds paid for the plan’s recordkeeping and other administrative services, the less expensive share classes’ fees did not.  Accordingly, the court held that the plaintiffs failed to cure the multiple fatal defects in their initial complaint and dismissed the amended complaint with prejudice.  The plaintiffs have not yet noted an appeal of the dismissal.

The case is Davis v., Inc., No. 20-cv-01753 (N.D. Cal. April 15, 2021).

The Ninth Circuit recently affirmed the dismissal of an ERISA employer-stock drop putative class action, holding that the plaintiff’s failure to identify specific, viable alternative actions that plan fiduciaries should have taken instead of the challenged actions was fatal to her claim. In so holding, the Ninth Circuit joined the Second, Fifth, Sixth, and Eighth Circuits, which require a plaintiff to articulate in the complaint the specific actions that the defendants should have taken rather than those that allegedly caused the plaintiff’s damages.

The plaintiff alleged that two executives of the plan sponsor who were fiduciaries of the company’s employee stock ownership plan (ESOP) breached their duty of prudence by failing to disclose to shareholders the company’s difficulties in managing a retired nuclear generating station. The plaintiff alleged that, as a result, employees retained “artificially inflated” company stock and that once the company disclosed its problems with the nuclear generation station, the price of the stock declined causing employees to lose millions of dollars in retirement savings.

The Ninth Circuit applied the pleading standard first espoused by the Supreme Court in Fifth Third Bancorp v. Dudenhoeffer, holding that the plaintiff’s “recitation of generic economic principles, without more, is not enough to plead a duty-of-prudence violation.” The court held that the plaintiff failed to articulate the alternative actions so clearly beneficial that a prudent fiduciary could not conclude it would be more likely to harm the Plan than to help it and instead relied on unspecified “generic economic principles,” including “key metrics reflecting the underlying risk and volatility” of the company’s stock, to support her claim. The court distinguished the Second Circuit’s decision in Jander v. Ret. Plans Comm. of IBM by holding that while a district court may consider “allegations reciting general economic principles,” those general allegations are insufficient without more to support a prudence claim. Accordingly, the court concluded the plaintiff failed to satisfy the Dudenhoeffer standard and affirmed the dismissal of her complaint.

The case is Wilson v. Craver, No. 18-56139 (9th Cir. Apr. 19, 2021)

The Ninth Circuit Court of Appeals recently addressed several issues of first impression in Bafford v. Northrop Grumman (9th Cir. April 15, 2021), a lawsuit involving retirees who received vastly overstated pension benefit estimates from the plan’s recordkeeper reminds employers of the importance of careful administration.   The case highlights the need to ensure that electronic recordkeeping systems and tools align with the plan terms.  Participant requests for plan or benefit information using online portals or other electronic means still demand timely and accurate responses as required by ERISA’s disclosure requirements.

Read the full article at Jackson Lewis Benefits Law Advisor Blog.

Aligning itself with other circuit courts that have ruled on the issue, the Ninth Circuit recently held that ERISA does not bar forum selection clauses in benefit plans.  The background of the case and the Ninth Circuit’s ruling are straightforward.  Plaintiff filed a putative class action in the Northern District of California challenging the management of Wells Fargo’s 401(k) plan.  Wells Fargo moved to transfer venue to the District of Minnesota under the 401(k) plan’s forum selection clause.  The California district court granted the motion to transfer and Plaintiff sought a writ of mandamus to stop the transfer.

Read the full article at Jackson Lewis Benefits Law Advisor Blog.

The U.S. Court of Appeals for the Second Circuit recently concluded that investment advisor Ruane Cunniff & Goldfarb must face a proposed class action under ERISA Section 502(a)(2) for breach of fiduciary duty relating to its alleged mismanagement of a profit-sharing plan sponsored by DST Systems, Inc.  Cooper v. Ruane Cunniff & Goldfarb Inc., No. 17-2805 (2d Cir. March 4, 2021).  The suit challenges Ruane’s allegedly “catastrophic over-allocation” of plan assets to shares in Valeant Pharmaceuticals, which dramatically declined in value in 2015-2016.

Read the full article at Jackson Lewis Benefits Law Advisor Blog.

In a 5-4 decision, the U.S. Supreme Court has ruled that federal courts can review decisions by the U.S. Railroad Retirement Board denying claimants’ requests to reopen prior benefits denials. Salinas v. U.S. R.R. Ret. Bd., No. 19-199 (Feb. 3, 2021).

Read the full article at Jackson Lewis Benefits Law Advisor Blog.