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.

In Metzgar v. U.A. Plumbers & Steamfitters Local No. 22 Pension Fund, 2022 U.S. App. LEXIS 5466 (2d Cir. Mar. 2, 2022), the Second Circuit in a summary order affirmed the district court’s decision granting summary judgment in favor of plan trustees regarding the trustees’ reinterpretation of what “retire” means under the terms of the pension plan.

Plaintiffs were participants in the U.A. Plumbers & Steamfitters Local 22 Pension Fund (the “Fund”), a defined benefit multi-employer pension plan governed by an Agreement and Declaration of Trust (the “Trust”). The Fund provided benefits to participants according to a Restated Plan of Benefits (the “Plan”). The Plan set the normal retirement age at 65, but it also provided a “Special Early Retirement” option to employees after their 55th birthday whose combined age and years of service equaled 85 or more. The Trust gave the trustees full discretionary authority to interpret the Plan.

Until fall 2011, the Plan operated with the understanding that participants did not have to stop working for a covered employer to receive special early retirement pension payments; they only had to stop working in a disqualifying employment position. This allowed participants to continue working in non-disqualifying employment (such as in a managerial position or as a project manager) while receiving pension benefits through the Plan.

In fall 2011, the Plan trustees reviewed the Plan and determined they had to change their interpretation of the term “retire” under the Plan because allowing participants who were not fully retired – i.e., those who had not severed their employment with their employers – to receive pension payments was putting the Fund in jeopardy of losing its tax-exempt status. The Plan trustees informed Plaintiffs that they could either cease their now disqualifying employment and continue to receive pension payments, or they could elect to continue their disqualifying employment resulting in the suspension of their pension payments.

Plaintiffs brought suit against the Fund, its Board of Trustees, and its Plan Administrator alleging: 1) this change violated ERISA’s anti-cutback rule; 2) the change was a wrongful denial of benefits in violation of ERISA § 502(a)(1)(B); and 3) Defendants breached their fiduciary duty to Plaintiffs.

The Second Circuit agreed with the district court that Defendants did not violate ERISA’s anti-cutback rule. In doing so, the appellate court reasoned that Defendants’ reinterpretation of “retire” did not constitute an “amendment” of the plan because its actual terms had not changed. In addition, under Defendants’ reinterpretation, Plaintiffs were never entitled to the accrued benefit they claimed to have lost.

The Second Circuit also affirmed the district court’s conclusion that Defendants’ decision to require Plaintiffs either to stop working or to stop receiving pension benefits was not arbitrary and capricious because it was based on a reasonable interpretation of the Plan. The Second Circuit noted this interpretation was based on the trustees’ reasonable conclusion this change was required to maintain the Plan’s tax-exempt status. The Second Circuit further explained that Plaintiffs failed to demonstrate how Defendants’ decision “to correct what they reasonably thought was an erroneous interpretation of the Plan in order to protect its tax-exempt status demonstrated a failure to exercise ‘care, skill, prudence, and diligence.’”

 

On March 4, 2022, the District Court for the District of Massachusetts dismissed, pursuant to Fed. R. Civ. P. 56, ERISA claims brought by a former employee who retired early at the age of 62 and receives retirement benefits in the form of a joint and survivor annuity. Belknap v. Partners Healthcare Sys., No. 19-11437-FDS, 2022 U.S. Dist. LEXIS 38381 (D. Mass. Mar. 4, 2022).

Plaintiff asserted that defendants violated ERISA by using allegedly unreasonable, outdated actuarial assumptions to determine the value of his joint and survivor annuity, resulting in a lower monthly payment. Pursuant to ERISA, a joint and survivor annuity paid in early retirement must be the “actuarial equivalent” of a single-life annuity paid beginning at the normal retirement age, which in this case was age 65 under defendants’ benefits plan. In sum, plaintiff alleged that his actual age-62 joint and survivor annuity was not actuarially equivalent to the single-life annuity that he would have received had he retired at age 65.

After two rounds of dispositive motions and amendments to the complaint, the parties engaged in a period of expert discovery followed by defendants moving for a third time to dismiss plaintiff’s claims. The court found that plaintiff sufficiently alleged that a favorable decision would result in an increase in his benefits and denied defendants’ 12(b)(1) motion on those grounds. Because both parties submitted expert evidence regarding the meaning of “actuarial equivalence,” the court converted defendants’ 12(b)(6) motion into one for summary judgment.

The court summarized the central issue concerning “actuarial equivalence” as one that required statutory interpretation to determine whether ERISA imposes a reasonableness requirement for “actuarial equivalence” in this context. The court concluded ERISA does not. First, in analyzing the meaning of “actuarial equivalent” under 29 U.S.C. § 1054(c)(3), the court rejected adding a reasonableness requirement, noting that the statute does not, on its face, define “actuarial equivalence” or require “reasonable” actuarial assumptions. The court concluded this omission was significant because elsewhere ERISA does so, such as by providing mortality assumptions and interest rates to convert annuities to lump sum payments.

Second, after considering regulations and case law, the court did not read them as requiring actuarial equivalence calculations based on reasonable assumptions. The court noted that the regulations related to lump sum benefits or to amendments of plans, neither of which applied here. The court determined that many of the cases relied on by plaintiff related to lump sum benefits, or they did not have persuasive reasoning for adding a reasonableness requirement to the statutory text.

Third, the court analyzed how “actuarial equivalence” is treated by actuaries in practice when they calculate the benefits to be paid to see whether it was a term of art in the field. The court found it is the undisputed industry practice to refer to the plan documents to determine the actuarial assumptions to use. Indeed, plaintiff’s own experts conceded this. In this case, defendants’ plan was the only relevant place where “actuarial equivalence” was defined, and the parties agreed that defendants followed the terms of the plan.

Finally, the court concluded this was not an absurd construction of ERISA, noting that retirement plans are “not generally required to provide protection against various forms of economic or social change.” For instance, nothing in ERISA imposes cost-of-living adjustments, even though over time inflation can significantly erode the value of pension benefits. The court also had noted earlier that there may be limitations on the actuarial factors a plan can use when it is adopted or amended.

In Newsom v. Reliance Standard Life Insurance Company, 2022 U.S. App. LEXIS 4505 (5th Cir. Feb. 18, 2022), the United States Court of Appeals for the Fifth Circuit clarified the difference between an eligibility determination and a disability determination for disability benefits.

James Newsom worked as a software architect for Lereta. He had a series of health problems dating back to 1999. By September 2017, his health had deteriorated to a point where he was unable to work a 40-hour week. Lereta reduced Newsom’s schedule to a 32-hour week, which was still considered full-time. By October 2017, Lereta placed Newsom on a part-time status. By January 2018, Newsom was unable to work.

Newsom submitted a claim for short-term disability (STD) and long-term disability (LTD) benefits. Newsom noted that he was first unable to work because of his disability in January 2018. Lereta indicated that Newsom had worked four days per week for seven hours per day before he was unable to work.

With regard to STD benefits, Reliance Standard Life Insurance Company denied Newsom’s claim on the basis that Newsom was not a full-time active employee in January 2018 and that, therefore, he did not qualify for STD benefit coverage. With regard to LTD benefits, Reliance determined that Newsom’s date of disability was in January 2018 and that Newsom had not worked full-time in the weeks prior to that date. Therefore, Reliance determined that Newsom was ineligible for LTD benefits.

Newsom appealed. With regard to STD benefits, Reliance reversed its decision and agreed to pay Newsom STD benefits for the STD benefit period. With regard to LTD benefits, Reliance affirmed its decision that Newsom was ineligible for LTD benefits.

Ultimately, Newsom filed suit, challenging Reliance’s denial of LTD benefits under 29 U.S.C. § 1132(a)(1)(B) of ERISA. At a trial upon submission of documentary evidence, the district court ruled for Newsom, concluding that Reliance erroneously denied Newsom LTD benefits. The district court agreed with Newsom that “regular work week” essentially meant “normal, ordinary, standard work week” or “scheduled work week,” and disagreed with Reliance’s view that the “actual hours worked” was determinative. The district court also found that Newsom was disabled as of October 2017, and that Newsom was entitled to more than $194,000 in LTD benefits.

Reliance appealed, arguing that the district court: (1) erred in its interpretation of “regular work week” under the LTD policy; (2) erred in finding October 2017 as Newsom’s date of disability; and (3) should have remanded the claim back to Reliance for an analysis of whether Newsom was disabled.

The Fifth Circuit quickly rejected Reliance’s first and second arguments. As to its third argument, Reliance argued that—because it denied Newsom’s claim on eligibility grounds—it never had a chance to determine whether Newsom was actually disabled for purposes of the LTD policy. Reliance argued that the district court should have remanded the claim to Reliance to develop a full factual record and to make a decision—for the first time—concerning whether to award benefits, and, if awarded, in what amount. On the other hand, Newsom argued that remand to Reliance would amount to an “impermissible ‘second bite at the denial apple.’”

The Fifth Circuit agreed with Reliance, explaining that Reliance had made only an eligibility determination, not a disability determination—two determinations that are “in fact distinct.” The Fifth Circuit explained that once Reliance determined Newsom was not eligible for LTD benefits, Reliance stopped its decision-making process. Accordingly, once the district court determined that Newsom was in fact eligible for benefits and determined the date on which Newsom’s eligibility began, the district court similarly should have stopped its decision-making process and remanded the case to Reliance to make the separate disability determination.

In a decision illustrating the importance of a deferential standard of review in an ERISA plan document, the Second Circuit affirmed the dismissal of severance claims by a disabled employee, concluding that the complaint pled facts showing that the denial of benefits was reasonable. Soto v. Disney Severance Pay Plan, No. 20-4081 (2d Cir. Feb. 16, 2022).

Plaintiff suffered several serious medical issues before her employment was terminated by Disney.  Although she received disability benefits, Disney refused to pay her severance benefits under its ERISA-governed severance plan (Plan).  Following two levels of internal claim review and denial, she filed suit against Disney, the Plan, and the Plan administrator. The district court dismissed her claims because she admitted that she had not received the requisite notice of eligibility from the Plan and had therefore “pled herself out of court.” On appeal, the Second Circuit affirmed the dismissal but on different grounds. The Second Circuit addressed the issue of whether the denial of severance benefits to Soto was improper, concluding that it was not.

District Court Dismisses for Lack of Notice

Plaintiff’s benefit entitlement hinged on whether she had experienced a “Layoff,” defined by the Plan as an “involuntary termination of employment . . . except for reasons of poor performance or misconduct.” The Plan administrator determined (and the Plan’s review committee agreed) that plaintiff’s “inability to return to work on account of her disabling illness” was not a “Layoff.”  Because plaintiff never received notice of benefit entitlement (an independent requirement for eligibility), however, the district court dismissed plaintiff’s claims without reaching the merits.

The Second Circuit Tackles the Merits

Acknowledging plaintiff’s theory that the eligibility notice was improperly withheld, the Second Circuit found that the propriety of the administrator’s interpretation of “Layoff” was central to plaintiff’s claims. The court therefore undertook a review of this interpretation.

Because the Plan granted the administrator discretionary authority to interpret Plan terms, the arbitrary and capricious standard governed the Second Circuit’s review. Under this standard of review, the administrator’s interpretation was afforded deference; it could be overturned only if without reason, unsupported by substantial evidence or erroneous as a matter of law.

The Second Circuit found it ambiguous whether plaintiff’s disability-based termination was an “involuntary termination of employment” (an undefined phrase) as needed for a “Layoff.” Although the dictionary definition of “involuntary” (“not done . . . by choice”) suggests a broad interpretation, the court concluded that a narrower interpretation (such as that of the administrator) was also reasonable.

The Second Circuit’s decision ultimately turned on a Plan term instructing the administrator to interpret the Plan in conformance with Internal Revenue Code Section 409A. Citing a regulation under 409A requiring that an employee be “willing and able to continue performing services” in order to be involuntarily terminated, the Second Circuit concluded that the Plan administrator reasonably interpreted “Layoff” to exclude a termination based on disability and affirmed the dismissal below.

Justice Sullivan, dissenting, stated that the Plan’s definition of “Layoff” unambiguously included terminations due to disability and characterized the majority’s analysis as “strained” and defying “both logic and common sense.”

Takeaways

Soto is instructive in several instances. It illustrates the importance of precise plan drafting, which seemingly could have avoided this prolonged controversy. The case also highlights the importance of securing arbitrary and capricious review. The deference afforded the administrator was likely determinative under the ERISA equivalent of baseball’s “tie goes to the runner.”

 

 

A most basic precept of the law is the attorney-client privilege. A litigant being able to speak freely and completely with his or her counsel without the fear of the conversation being revealed has been a cornerstone of American jurisprudence.

Although the concept of the attorney-client privilege is recognized in ERISA matters, it is modified by the fiduciary exception. Most communications between fund counsel and a fund are directed to a plan administrator with rarely any communication directed to participants and/or beneficiaries. However, it is those participants and the beneficiaries who are the clients. The fiduciaries and administrators are not the “client” personally but only in their representative roles.

In addition, the subject matter of the communication determines the privilege and if disclosure to plan participants and beneficiaries (the “client”) is required. The subject matter dealing with a fiduciary function is neither privileged nor protected from disclosure to participants and beneficiaries. Fiduciary functions include plan management or administration. In contrast, communications relating to settlor functions (including plan design, amendments, or modification) do not require disclosure to participants or beneficiaries.

Specific procedures should be established by fund counsel to minimize errors involving communications with fund administrators or trustees. If a participant or beneficiary files a lawsuit and the cause of action involves a fiduciary function, communications between the plan administrator and other fiduciaries and counsel may have to be disclosed in litigation.

A California district court recently foreclosed a former independent contractor’s claims for benefits from ERISA-governed plans when it found that plaintiff was not a “participant” as defined by ERISA and thus did not have statutory standing to assert his ERISA claims. Alders v. YUM! Brands, Inc., No. 8:21-cv-01191-PSG-DFM (C.D. Cal. Feb. 1, 2022).

After working for 25 years as an independent contractor, plaintiff filed suit claiming that he had been misclassified as an independent contractor and, as a result, was wrongfully excluded from defendants’ various retirement plans. Defendants moved to dismiss the claims, in part on the grounds that plaintiff lacked statutory standing under ERISA because he was not a participant in the plans.

The court agreed with defendants and dismissed the claims. The court explained that only plan participants, beneficiaries, fiduciaries, and the Secretary of Labor are entitled to bring claims under ERISA Section 502(a). “Participant” was the only possible fit for plaintiff but did not apply here because a former employee claiming participant status must have a colorable claim to benefits, not just allege in a conclusory manner, as plaintiff did, that he should have been a participant. Further, plaintiff’s own complaint contradicted the allegation that he was a participant in the plans as it repeatedly stated that he was excluded from participating in defendants’ retirement plans. As such, plaintiff lacked the right to sue and his claims were dismissed.

A Massachusetts district court recently ordered defendants in an ERISA fiduciary breach case to produce certain communications with their in-house and outside counsel, rejecting defendants’ argument that the communications occurred in the context of attorneys advising a 401(k) plan’s sponsor and fiduciaries as to their potential fiduciary liability. In re GE ERISA Litig., 2022 U.S. Dist. LEXIS 16586 (D. Mass. Jan. 26, 2022).

The parties’ discovery dispute arose in one of the many class action lawsuits pending against 401(k) plan sponsors and fiduciaries concerning the management of their 401(k) plans. During the course of discovery, defendants withheld communications with their attorneys regarding their 401(k) plan’s investment policy, investment directives, and fiduciary committee charters on the basis of attorney-client privilege. Plaintiffs moved to compel production, arguing that the documents were not privileged due to the fiduciary exception to the attorney-client privilege. Under that doctrine, courts have held that legal advice to plan fiduciaries about plan administration is not protected by attorney-client privilege because such advice is given to the plan fiduciaries on behalf of and for the benefit of the plan participants, thus it is not proper to shield such communications from participant view.

Defendants argued that the communications fell into one of the exceptions to the fiduciary exception, wherein attorney-client privilege re-attaches to communications if the legal advice relates to the plan fiduciaries’ personal liability. In particular, defendants argued that attorneys reviewed plan documents, like investment policies and charters, to advise the fiduciaries on the risk of fiduciary liability given the increasing frequency of 401(k) litigation against employers.

The district court ordered the communications to be produced and differentiated between attorney review based on pending or anticipated litigation, which is privileged, and review based on “a general fear of liability,” which is not privileged. The court was “not persuaded that the prevalence of other 401(k) litigation during the relevant time period is a specific enough litigation risk” to trigger the protection of attorney-client privilege because “guarding against a generalized risk of litigation is a fiduciary duty and does not create a divergence between the interests of the fiduciaries and Plan beneficiaries,” and allowing a fiduciary to fall back on the excuse would cause the fiduciary exception to “cease to function as intended.”

 

 

Yesterday, the Supreme Court issued its unanimous decision in Hughes v. Northwestern University, No. 19-1401, just one of more than 150 similar class action suits filed around the country in the last few years. The case was brought by retirement plan participants alleging that plan fiduciaries breached their duties under ERISA relating to recordkeeping and investment fees charged to plan participants. Specifically, plaintiffs alleged that Northwestern breached its ERISA-imposed duty of prudence by (1) paying excessive recordkeeping fees (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 Northwestern’s motion to dismiss, and the Seventh Circuit affirmed. Regarding the recordkeeping claim, the Seventh Circuit found no ERISA violation, explaining that ERISA does not require a sole recordkeeper, and that there is “nothing wrong – for ERISA purposes – with plan participants paying recordkeeper costs through expense ratios” under a revenue sharing agreement.

The Seventh Circuit also rejected the excessive investment fee claim, concluding that the types of funds plaintiffs wanted (low-cost index funds) were available to them, thus “eliminating any claim that plan participants were forced to stomach an unappetizing menu.”

Plaintiffs appealed to the Supreme Court, which granted certiorari to address this question: “[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 a unanimous decision authored by Justice Sotomayor (minus Justice Barrett, who recused herself because she sat on the Seventh Circuit at the time it decided the case), the Supreme Court held that the Seventh Circuit erred in affirming the district court’s dismissal of the claims. Importantly, the Court did not decide whether plaintiffs had plausibly alleged a violation of the duty of prudence. Instead, the Court vacated the judgment of the Seventh Circuit and remanded the case for further analysis.

With respect to the excessive investment fee claim, the Court relied on its 2015 decision in Tibble v. Edison Int’l, 575 U.S. 523 (2015), maintaining that plan fiduciaries have a duty to “conduct their own independent evaluation to determine which investments may be prudently included in the plan’s menu of options” and to “remove an imprudent investment from the plan within a reasonable time.” As such, the Hughes Court found it was not a defense that the plan offered low-cost index funds (“the types of funds plaintiffs wanted”) in addition to the challenged funds. Holding that “[t]he Seventh Circuit’s exclusive focus on investor choice elided this aspect of the duty of prudence,” the Court vacated the decision in favor of Northwestern and remanded to the Seventh Circuit to “reevaluate the allegations as a whole … consider[ing] whether [plaintiffs] have plausibly alleged a violation of the duty of prudence as articulated in Tibble.”

The Court’s stance on the recordkeeping claim is less clear. It appears to have lumped that claim in with the investment claim when referring to the application of Tibble. But Tibble did not address recordkeeping fees, and recordkeeping fees are not always a function of investment choices.

Although remanding the case, the Court took time to stress that the pleading standards set forth in Ashcroft v. Iqbal, 556 U. S. 662 (2009), and Bell Atlantic Corp. v. Twombly, 550 U. S. 544 (2007), continue to apply to Rule 12(b)(6) motions in these cases. Equally important, the Court cited to its more recent decision in Fifth Third Bancorp v. Dudenhoeffer, 573 U.S. 409, 425 (2014). There, the Court endorsed rigorous application of the 12(b)(6) pleading standard to protect plan fiduciaries from meritless, hindsight claims that second-guess fiduciary decisions, and to avoid “the threat of costly duty-of-prudence lawsuits.”

Relying on Dudenhoeffer, the Hughes Court explained that “the appropriate inquiry” into whether investment options and fees are prudent “will necessarily be context specific.” As such, the Hughes Court recognized that “[a]t times, the circumstances facing an ERISA fiduciary will implicate difficult tradeoffs, and courts must give due regard to the range of reasonable judgments a fiduciary may make based on her experience and expertise.”

Moving forward, trial courts, including the Hughes district court, are tasked with weighing these or similar allegations against a “context specific” backdrop, taking into account the fiduciary’s reasonable options and decisions, and disallowing claims based on hindsight and second guessing. Context in these cases should include, among other things, what options were available and when, whether comparators offered by plaintiffs are identical to the funds selected by plan fiduciaries, and whether funds were selected because revenue sharing was available with those funds to offset recordkeeping fees, etc.