News and Insights on the latest ERISA litigation trends for employers
The U.S. Supreme Court’s opinion in Dobbs v. Jackson Women’s Health Organization, No. 19-1392 (June 24, 2022), overruling Roe v. Wade and Planned Parenthood v. Casey, has far-reaching consequences across many areas. This special report examines the potential impact Dobbs will have on employee benefits litigation.
Click here to read the full article on our website.
The DOL’s cybersecurity investigation into Alight Solutions, LLC, a retirement plan recordkeeper, has queued up court rulings on the reach of the DOL’s subpoena power that may have important implications for ERISA plan sponsors and their respective recordkeepers and service providers moving forward. First, the Seventh Circuit will weigh in on whether the district court erred in compelling Alight to produce certain documents over Alight’s objections that: (1) the DOL lacks the authority to investigate a recordkeeper because its actions are not fiduciary in nature, (2) the requests are overbroad because they are not limited to cybersecurity incidents involving Alight’s clients, and (3) the requests for unredacted documents would violate Alight’s confidentiality agreements with its clients and plan participants.
In addition, while the appeal has been pending in the Seventh Circuit, the parties await another decision from the district court that will speak to the DOL’s power to share confidential documents received in an investigation across other government agencies. Alight seeks to require the DOL to attach the Confidentiality Order to any disclosure it makes to another governmental agency. However, the DOL has argued in response that the retention and sharing of documents by the United States is already highly regulated and to add additional burdens would circumvent Congress’s power.
Final resolution of these issues will be of interest to benefit plan sponsors and service providers, particularly those with ongoing DOL investigations.
The Third Circuit Court of Appeals recently held that as the plan fiduciary of Universal’s defined contribution plan, Universal Health Services Inc. and its plan investment committee (collectively “Universal”) must face a class action claiming its retirement plan included imprudent investment options charging excessive fees to more than 60,000 participants, even though the three named plaintiffs only invested in seven of the 37 plan investment options challenged by their lawsuit.
Universal had appealed a 2021 decision certifying the Employee Retirement Income Security Act lawsuit as a class action covering all of the plan’s 60,000 participants. Universal claimed that the class as certified was overbroad because the three named plaintiffs had only invested in a handful of the challenged funds in the plan and, therefore, their claims were not typical of the class. Universal also argued the plaintiffs only had standing to sue on behalf of others who had invested in the same funds.
A unanimous three-judge panel said that while the named plaintiffs only invested in a fraction of the funds offered by the plan, Universal’s alleged failure to properly evaluate investment fees affected all the funds in the Plan the same way. The appellate court focused on the investment decisions offering the suite of challenged target funds to conclude plaintiffs had a concrete stake in and typical class claims as to those decisions, even though plaintiffs had not invested in all of the funds in that suite. The appellate court applied this same analysis to plaintiffs’ claim Universal failed to follow a prudent process to evaluate investment options offered in the plan. While the appellate court acknowledged that allowing class representatives to bring claims based on funds they didn’t personally hold “may result in some inefficiency at the damages stage” of litigation, the court held that it doesn’t bar class certification under Federal Rule of Civil Procedure 23(b)(1).
This case is Boley v. Universal Health Servs., No. 21-2014, 2022 U.S. App. LEXIS 15001 (3rd Cir. June 1, 2022).
Four former employees of Eversource Energy Company recently obtained partial class certification of their claims. However, the District of Connecticut ruled that because the named plaintiffs are all former participants in the plan, they could not seek prospective relief, and only granted certification with respect to claims for retrospective relief.
Plaintiffs’ Second Amended Complaint sought prospective injunctive relief as well as retrospective relief for damages related to alleged breaches of fiduciary duty for charging excessive recordkeeping fees, investing in a suite of actively managed target date funds known as the Fidelity Freedom Funds instead of the lower cost, passively managed Freedom Index Funds, and imprudently investing in and retaining other specific investment options. Overall, 14 of 19 investment options in the plan were challenged, and all challenged options were invested in by at least one of the four named plaintiffs.
Defendants opposed class certification on the grounds that the named plaintiffs lacked Article III standing to: (1) seek prospective relief as they were not current participants in the plan; and (2) claim losses on behalf of funds in which they did not personally invest. The Court agreed with the defendants on their first argument, but disagreed as to the second.
First, the Court found that although the plaintiffs satisfied the statutory definition of “participants” in order to bring a cause of action under ERISA, they were still required to show the likelihood that they were subject to future harm when seeking prospective injunctive relief to satisfy Article III standing. Because the plaintiffs were no longer enrolled in the plan, the Court found “the defendant’s future management of the Plan does not pose a ‘real or immediate threat’ to the plaintiffs and they have no Article III standing to seek forward-looking injunctive relief.”
Second, the Court engaged in an extensive analysis of the different approaches to determine the extent of a plaintiff’s Article III standing to seek relief when suing in a derivative capacity under section 502(a)(2). One approach finds that a plaintiff has standing by simply participating in the plan and alleging injury to the entire plan, regardless of individual loss. The second approach requires a plaintiff to show sufficient injury of individual loss and then can only sue for losses for funds in which the plaintiff invested.
Here, the Court did not opine on the correct approach, but concluded the plaintiffs had constitutional standing because their Second Amended Complaint identified individual losses stemming from the defendants’ alleged breaches. Further, the Court found plaintiffs could also bring claims on behalf of putative class members who invested in the non-challenged funds (i.e., funds that none of the named plaintiffs invested in) because the alleged imprudence of defendants’ investment process implicated the “same set of concerns” of all putative class members and the derivative actions under Section 502(a)(2) are brought on behalf of the entire plan. Finally, although the Court denied certification prospectively, it did grant plaintiffs leave to amend to add a current plan participant with standing to seek such relief as a named plaintiff within thirty days.
With nearly 200 similar lawsuits filed in the past few years, this decision provides significant insight into the Article III analysis district courts undertake in the class certification context and highlights an argument all employers should make when former plan participants are seeking prospective relief.
Numerous Fortune 500 companies around the country have recently seen a barrage of cases alleging that notices required under the Consolidated Omnibus Budget Reconciliation Act (COBRA) fail to provide all information required by COBRA. Class action cases filed against high-visibility defendants in Georgia, Michigan, Florida, and elsewhere allege the companies violated federal law when they sent purportedly inaccurate, threatening, or confusing notices of former employees’ rights to elect to continue medical-insurance coverage after their employment ended.
Under COBRA, election notices must contain information including a mailing address for payments, the identity of the plan administrator, an explanation of how to enroll, and a physical form to elect coverage. The U.S. Department of Labor (DOL) provides a model COBRA notice template, updated in 2020, which contains these items. Yet few companies use DOL’s model COBRA notice, for several reasons. First, most companies contract with third-party vendors, who design and provide their own notices to covered persons experiencing a qualifying event, such as job separation. Second, these vendors often omit the plan administrator’s name to avoid confusion, because the payments must be mailed to the third-party vendor. Third, many items specified in the DOL model notice are often unknown (and therefore omitted) at the time notice is given. The resulting litigation is directed at the employer or plan sponsor as the defendant, but not the vendor whose election notice is challenged.
Employers have long had difficulty adhering to COBRA’s technical requirements, which have become even more onerous over the past two years. In addition to revising model COBRA notices in 2020, the DOL and Internal Revenue Service (IRS) also extended many deadlines relating to COBRA; DOL and IRS provided additional guidance following the enactment of the American Rescue Plan Act of 2021.
New COBRA litigation was already surging before these changes went into effect, and the increased complexity added by these new developments have added fuel to the fire. Purely technical violations of COBRA’s notice provisions not resulting in actual harm to the plaintiffs, when brought as a class action, can nevertheless expose defendants to staggering potential damages because of statutory penalties that accrue per person per day, as well as the potential for an award of attorneys’ fees.
In sum, COBRA provides many avenues to sue companies – many of whom do not even issue their own COBRA notices – for technical violations of its quickly multiplying requirements. These cases, filed as class actions, can present the risk of protracted litigation, even where the underlying claims lack merit. Accordingly, many defendant companies opt for class settlements ranging from just over $100,000 to just under $1,000,000, oftentimes at the outset of litigation before any discovery has even been conducted. Even less surprising is that more and more plaintiff-side firms are entering this field, eyeing the potential to take home one-third of a large common fund settlement shortly after filing a complaint.
The Employee Retirement Income Security Act of 1974 (“ERISA”) aims to balance the dual policies of (1) ensuring fair and prompt enforcement of rights under employee benefit plans, and (2) encouraging the creation of such plans. To strike this balance, ERISA pairs comprehensive rules regarding fiduciary responsibility with federal causes of action that allow plan participants and beneficiaries to recover benefits due, enforce ERISA’s mandates, obtain injunctive relief, and, where applicable, obtain attorney’s fees. At the same time, to protect employers and plan sponsors from operating under a patchwork of potentially conflicting state and local regulations, ERISA promotes uniformity in benefits administration by preempting “any and all state laws insofar as they may now or hereafter relate to” any ERISA benefit plan. 29 U.S.C. § 1144(a).
Click here to read more on the Healthcare Workplace Update blog.
On April 15, 2022, participants in the U.A. Plumbers & Steamfitters Local 22 Pension Fund filed a petition for panel and en banc rehearing of the Second Circuit’s ruling in favor of the pension plan’s decision to retroactively require plan participants to choose between either ceasing their post-retirement employment or foregoing early retirement benefits. See Metzgar v. U.A. Plumbers & Steamfitters Local No. 22 Pension Fund, No. 20-3791, 2022 U.S. App. LEXIS 5466 (2d Cir. Mar. 2, 2022), and our previous article on that decision.
In 2013, certain plan participants brought suit against the pension fund itself, the Board of Trustees, and the plan administrator, in her individual capacity, alleging that the plan’s reinterpretation of the conditions of “retirement” breached ERISA fiduciary duties to plan participants and unlawfully denied benefits. The plaintiffs also argued that having to choose between continued employment and receiving their pensions violated ERISA’s anti-cutback provision in that the reinterpretation of the plan subsequently decreased their amount of accrued benefits.
In March 2019, Magistrate Judge Leslie G. Foschio from the Western District of New York recommended granting summary judgment to defendants, focusing on the plan’s discretionary authority provision and finding that the plan’s reinterpretation was based on a reasonable belief that the provision violated IRS rules. Judge John Sinatra adopted that recommendation and granted summary judgment in October 2020. The Second Circuit affirmed.
In their petition for rehearing, plaintiff-petitioners argued that the Second Circuit ruling deviated from established precedent that precluded plan reinterpretations from decreasing previously awarded benefits. In particular, petitioners cited to the U.S. Supreme Court’s 2004 decision in Central Laborers’ Pension Fund v. Heinz, 541 U.S. 739 (2004), where the Supreme Court ruled that a plan could not be amended to “undercut” a plan participant’s reliance on the value of his or her pension rights and promised benefits. Petitioners also highlighted the Second Circuit’s 2006 decision in Frommert v. Conkright, 433 F.3d 254 (2d Cir. 2006) (referred to as “Frommert I”), which considered whether a pension plan violated ERISA’s anti-cutback rule by applying a phantom account formula to calculate the hypothetical growth that rehired employees’ past distributions would have experienced in order to reduce their present benefits, where the phantom account provisions had appeared in previous plan documents but had been omitted from a subsequently restated plan document. Petitioners argued that, in rejecting the plan’s claim that the provisions were always part of the plan as an unreasonable exercise of discretion and an anti-cutback violation, the Second Circuit had focused on the “centrality of ERISA’s object of protecting employees’ justified expectations of receiving the benefits their employers promise them.”
Petitioners also argued that the fund’s reinterpretation of the conditions of retirement for participants applied “discretionary[] [and] subjective” conditions on a participant’s ability to receive benefits, which violated ERISA regulations. Petitioners distinguished that while the fund did have discretion to determine whether participants had satisfied objective conditions required to receive a benefit, it could not subjectively decide what those conditions are.
In contrast, appellees argued that the anti-cutback provision is not even at issue as courts have held that plan participants cannot accrue illegal benefits.
Petitioners’ panel rehearing request is currently pending.
A New York district court recently dismissed, without prejudice, a 401(k) plan participant’s putative class action complaint alleging breaches of fiduciary duty. The plaintiff alleged that the plan fiduciary-defendants breached their duties of prudence and loyalty by failing to properly monitor the plan’s costs. Cunningham v. USI Ins. Servs., LLC, 2022 U.S. Dist. LEXIS 54392 (S.D.N.Y. Mar. 25, 2022).
First, the plaintiff alleged that the defendants allowed the 401(k) plan to pay recordkeeping fees that were nearly three times what an alleged prudent and loyal fiduciary would have paid for similar services. The plaintiff alleged that the fees were paid directly from the plan participants’ accounts, and indirectly paid through revenue sharing with the recordkeeper. The court rejected that claim, finding that the plaintiff failed to allege how she calculated the plan’s direct and indirect fees, and how the sum of those fees was excessive in relation to the specific services provided to the plan as compared to alleged “comparable plans.” Although the plaintiff provided a table of alleged “comparable plans” and their recordkeeping fees, the defendants pointed to the publicly available Form 5500s, which demonstrated that the alleged “comparable plans” offered different services than that of the plan in this case. As such, the court held that the plaintiff failed to allege sufficient facts to allow for inferences that the “comparable plans” offered the same “basket of services.”
Second, the plaintiff alleged that the defendants breached their duty of loyalty by employing their own subsidiary as the plan’s recordkeeper and allowing the plan to pay the recordkeeper “multiples of the reasonable per-participant amount for the Plan’s [recordkeeping] fees.” The court held that the plaintiff’s duty of loyalty claim was intrinsically dependent on her dismissed breach of prudence claim and therefore dismissed the breach of duty of loyalty claim.
Lastly, like the breach of duty of loyalty claim, the court found the failure to monitor claim depended on the breach of prudence claim. Because a claim for breach of the duty to monitor requires an antecedent breach to be viable and the plaintiff failed to plead a viable breach of prudence or breach of loyalty claim, the court dismissed the failure to monitor claim as well.
This decision is one of the first following the Supreme Court’s recent opinion addressing the pleading standards in these fee cases. As there have been more than 170 similar class action suits filed around the country in the last few years, this decision may provide a roadmap on how district courts can address complaints alleging breaches of fiduciary duty which fail to explicitly provide the formula used to calculate the alleged imprudent recordkeeping fees.
ERISA makes clear that it governs “any plan, fund, or program … established … by an employer … for the purpose of providing [health benefits] for its participants.” 29 U.S.C. § 1002(1). Although most employee benefit plans that provide benefits to employees are governed by ERISA, some arrangements are not. The Northern District of Illinois’ recent decision in Till v. National General Accident & Health Insurance Co., No. 21-1256 (N.D. Ill. Mar. 8, 2022), provides some guidance into what kinds of arrangements may not constitute an ERISA plan.
The plaintiff in Till visited a hospital for medical treatment, and the following day, purchased a health insurance policy issued by the defendant. The policy was purchased through an association and provided coverage only to the plaintiff. The day after purchasing the policy, the plaintiff returned to the hospital and was treated for a pulmonary embolism. The defendant denied coverage, citing the policy’s pre-existing condition exclusion. The plaintiff then filed suit, claiming the denial violated ERISA. According to the plaintiff, the policy qualified as an ERISA plan because he bought it through an association of employers.
The defendant moved to dismiss, arguing the policy was not governed by ERISA. The court agreed, finding that ERISA governs plans arising from employment relationships, and that one cannot have an employment relationship with oneself. In other words, ERISA’s definitions of employer and employee contemplate separate parties. Here, the plaintiff had not alleged that his business had any employees, and the policy provided coverage only to plaintiff as an individual.
In addition, the court found that the plaintiff had not plausibly alleged that the association through which he had purchased his policy satisfied ERISA’s definition of an “association of employers.” The court stated that, under the relevant regulation, for an association to fit within the definition, it must be established by a group of employers to provide benefits to employees, have at least one substantial business purpose unrelated to the provision of benefits, have employer members that control the plan, and meet the various documentation requirements for plans established by the Department of Labor. The court found that plaintiff did not plausibly allege that the association met these requirements because the plaintiff alleged no facts about the association. For this additional reason, the policy was not governed by ERISA and the case was dismissed.
It’s no secret that the statutory deck under ERISA is stacked heavily in favor of multiemployer pension plans (MEPPs) and against employers contributing to (or withdrawing from) Taft-Hartley trust funds. For example, an employer who receives a demand to pay its alleged allocable share of a multiemployer pension plan’s unfunded vested benefits (Withdrawal Liability) will generally only have 90 days to properly respond or be forever barred from raising any defenses except payment in full. The deadlines for initiating arbitration are even trickier. An employer must initiate arbitration on the earlier of: (1) 60 days after the date the plan responds to the employer’s request for a review; or (2) 180 days after the employer’s request for review. An unwary employer may miss the arbitration deadline by simply expecting the MEPP to respond to the request for review, which it has no obligation to do.
Even more alarming to some employers is that if certain interim withdrawal liability payments (as calculated by the MEPP) are not timely made, the otherwise applicable 20-year payment schedule can be accelerated and the full amount (as alleged by the Fund) can be enforced in federal district court by the Trustees for the MEPP. This is true even before the merits of the underlying liability have been arbitrated (and assuming no deadlines were missed). This harsh result, sometimes called “pay-now, dispute later,” is an extraordinary remedy that allows the Funds to, at times, avoid due process.
The federal courts have further expanded the reach of these MEPPs. The Ninth Circuit lowered the bar for MEPPs seeking to enforce Withdrawal Liability against successors. Resilient Floor Covering Pension Trust Fund Bd. of Trs. v. Michael’s Floor Covering, Inc., 801 F.3d 1079, 1090-91 (9th Cir. 2015) (citing NLRB v. Jeffries Lithograph Co., 752 F.2d 459, 463 (9th Cir. 1985)). The Seventh Circuit appears even more willing to allow MEPPs to enforce a predecessor’s Withdrawal Liability against successors by focusing on the intent and motives of the asset purchaser. See our article on Indiana Elec. Workers Pension Benefit Fund v. ManWeb Servs., 884 F.3d 770 (7th Cir. 2018).
However, on a seemingly rare occasion, reasonableness and fairness prevail in favor of the employer and against the MEPP. In a recent decision by the Eastern District of Washington, the employer was able to overcome successor allegations by the International Painters and Allied Trades Industry Pension Fund (IUPAT Fund). D9 Contrs., Inc. v. Int’l Painters & Allied Trades Indus. Pension Fund, 2022 U.S. Dist. LEXIS 37072 (E.D. Wash. Mar. 2, 2022). In that case, the IUPAT Fund sought to enforce Withdrawal Liability alleged to be owed by Division 9 Contractors, Inc. (Division 9) against a similarly named employer, D9 Contractors, Inc. (D9). D9 filed the action in federal court, seeking a declaration that it did not owe any Withdrawal Liability to the IUPAT Fund, despite never initiating arbitration and never making an interim payment. Under the applicable legal standard, the court focused on continuity of operations between D9 and Division 9. Both entities shared some employees, and both relied on the same equipment and methods of production. However, in the end, the court held that based on all the applicable factors, the IUPAT Fund failed to connect the dots between Division 9 and D9. The Court also discussed a procedural issue, but in the end the case was decided on the merits and in favor of the employer. Phew!
D9 is like a terrible surprise party that turned out ok in the end. The necessity of the employer’s declaratory action, although ultimately successful, is a chilling reminder that all correspondence from MEPPs should be taken seriously, especially demands for Withdrawal Liability. The failure to strictly adhere to statutory deadlines can be, and often is, catastrophic.
Savvy employers would be well-served by treating Withdrawal Liability like any other potential liability that could threaten the solvency of the company (and all trades and businesses under common control with the withdrawing employer). With the proper counsel, Withdrawal Liability can be managed, and most unwanted surprises avoided. Deal counsel is similarly well-served by seeking our counsel with due diligence and in negotiating asset/stock purchase agreements when either seller or buyer ever contributed to a MEPP. Withdrawal Liability can be a huge scary number but attempting to merely white-knuckle it may deliver your company or your M&A deal a fatal, yet avoidable, blow.
