Chesemore v. Fenkell, Nos. 14-3181, 14-3215 & 15-3740 (7th Cir. 2016), involved the following situation. Trachte Building Systems, Inc., a Wisconsin manufacturer, established an employee stock ownership plan (“ESOP”) in the mid-1980s when ESOPs were a popular employee-benefits instrument. In the late 1990s, David Fenkell and Alliance Holdings, Inc., a company he founded and controlled, developed a niche specialty in buying and selling ESOP-owned, closely held companies with limited marketability. In the typical transaction, Fenkell would merge the ESOP of an acquired company into Alliance’s own ESOP, hold the company for a few years with its management in place, and then spin it off at a profit (assuming everything went as planned).


In accordance with this business model, Alliance acquired Trachte in 2002 for $24 million and folded its ESOP into Alliance’s ESOP. Fenkell projected that the company would fetch around $50 million in five years. When the time came to sell, however, Trachte’s profits were flat, its growth had stalled, and no independent buyer would pay anywhere near that price. So Fenkell offloaded the company to its employees in a complicated leveraged buyout. When all was said and done, Trachte and the new Trachte ESOP had paid $45 million for 100% of Trachte’s stock and incurred $36 million in debt. The purchase price was inflated and the debt load was unsustainable. By the end of 2008, Trachte’s stock was worthless. The losers in this deal—the employee participants in the new Trachte ESOP—sued Alliance, Fenkell, his handpicked trustees, and several other entities alleging breach of fiduciary duty in violation of ERISA.


The district court held a bench trial and issued a comprehensive opinion finding the defendants liable. After an additional hearing, the judge crafted a careful remedial order making the class and a subclass whole. The judge later awarded attorney’s fees and approved settlements among some of the parties. Fenkell appealed. He concedes liability but raises many objections to the remedial order, the award of attorney’s fees, and the settlements by his codefendants. The only substantial issue on appeal is a challenge to the judge’s order requiring him to indemnify his cofiduciaries. As to this issue, the Seventh Circuit Court of Appeals (the “Court”) said that it held more than 30 years ago that ERISA allows this. Since then a circuit split has arisen on this subject, but the Court was not persuaded that its earlier decision should be overruled. Accordingly, the Court affirmed the district court’s rulings in all respects.

In Lebahn v. National Farmers Union Uniform Pension Plan, No. 15-3201 (10th Cir. 2016), the Tenth Circuit Court of Appeals (the “Court”) faced an appeal involving claims under ERISA. Mr. Trent Lebahn and his wife had claimed that a pension-plan consultant breached a fiduciary duty by misstating the amount of the monthly pension payments that Mr. Lebahn would receive if he were to retire.

However, noted the Court, under ERISA, the plan consultant could be considered a fiduciary only if she exercised discretionary authority over the plan’s administration. On appeal, the Court asked: Does a consultant exercise discretionary authority in administering the plan simply by making a calculation of benefits at the request of a plan participant?  The Court conclude that a consultant does not exercise discretionary authority under these circumstances, and therefore could not be a fiduciary or breach fiduciary duty.

In Kelley v. Fidelity Management Trust Company, No. 15-1445 (1st Cir. 2016), the First Circuit Court of Appeals (the “Court”) faced an appeal from the district court’s dismissal of a putative class action filed by retirement-plan participants and one plan administrator. They had claimed that defendants are dealing with plan assets in breach of fiduciary duties imposed by ERISA. Upon reviewing the case, the Court affirmed the district court’s decision.

In this case, the defendants are various Fidelity entities that had trust agreements with the several 401(k) plans (collectively “Fidelity”).   As part of its duties, Fidelity effected withdrawals from the plans. In turn, as part of the withdrawal process, when a participant requested a withdrawal from the plan, any shares of a mutual fund, in which his or her account was then invested, were redeemed by the mutual fund’s payment of money in an amount equal to the market value of the shares. Fidelity would earn and retain interest on the “float” resulting from the mutual fund payment. Plaintiffs allege that Fidelity breached its fiduciary duties under ERISA, particularly the duties requiring a trustee to act in the best interest of participants and beneficiaries and to avoid self-dealing, in earning and retaining this interest.  That is, Fidelity breached its fiduciary duty by using the float to earn interest for itself, rather than for the benefit of the plans by giving the plans the interest.

However, the Court said that, for the plaintiffs’ claim to go forward, the float would have to be a plan asset for ERISA purposes. The float is not a plan asset, since the payout from the mutual fund does not go, and is not intended to go, to the plan. The plan has no claim to the float. Consequently, the plaintiffs’ claims must be dismissed.

In Gomez v. Ericsson, Inc., No. 15-41479 (5th Cir. 2016),  Ericsson, Inc. laid off Mark Gomez. Gomez was eligible for severance compensation if he complied with the terms of a Release and Severance Agreement. Ericsson determined that he did not comply with a provision requiring the return of all Ericsson property because work files were missing on the company laptop he returned. According to the Fifth Circuit Court of Appeals (the “Court”), this case requires the Court to answer two questions. Does ERISA govern this dispute? If so, did Ericsson abuse its discretion in concluding that Gomez was not eligible for severance pay? The district court had ruled against Gomez, holding that ERISA did apply, and that Ericsson-as administrator- had not abused its discretion in denying severance pay.

As to the first question, the Court said that it is the existence or nonexistence of an “ongoing administrative program” that is the key determinant of whether severance arrangements- such as the one at issue here-are governed by ERISA. Even where the arrangement’s benefit is a single lump sum payment-again as here-the administrative scheme can be found in a number of other features that require discretion: the eligibility determination; calculations of the payment amount (such as deductions and detailed formulas); the provision of additional services beyond the severance payment (such as insurance); and the establishment of procedures for handling claims and appeals.

In this case, said the Court, administrative activity is abundant when it comes to Ericsson’s severance arrangements (the “Plans”). The Plans are ongoing on a large scale. They cover over 10,000 employees across the nation, which could result in hundreds of different events that the Plans have to administer. Further, the Plans also require the administrator to exercise a great deal of discretion, as it must determine whether a “good reason” exists that qualifies an employee’s voluntary termination and thus severance entitlement. The Plans have the added feature of requiring compliance with the waiver and release, the contested issue here. And once eligibility is determined, further acts of the administrator are required to determine the amount of benefits, and whether any deductions apply. Ericsson’s plans check off most of the factors indicative of ERISA plans and are therefore subject to ERISA, so that ERISA governs the dispute.

In Hunter v. Berkshire Hathaway, Inc., No. 15-10854 (5th Cir. 2016), in an ERISA action, plaintiffs Judy Hunter, Anita Gray, and Bobby Lynn Allen appeal the district court’s dismissal of their claims against Berkshire Hathaway, Inc. (“Berkshire”) and Acme Building Brands, Inc. (“Acme”).

In 2000, Berkshire bought Justin Industries, Inc. (“Justin”). At the time, Justin’s subsidiary Acme provided its eligible employees with certain retirement benefits, including an ability to participate in a company Pension Plan or an individual 401(k) Plan. Acme matched fifty percent of an employee’s contributions to his or her 401(k) Plan account on an annual basis, up to five percent of the employee’s compensation (rate of match subsequently reduced or eliminated).  In 2014, Berkshire allegedly contacted Acme about reducing or eliminating benefits in Acme’s retirement plans. One alternative given to Acme was to implement an immediate “hard freeze” of the Pension Plan, and restore the 401(k) Plan’s employer matching contribution to fifty percent, with the caveat that the contribution rate could be changed any time after 2014. Acme ultimately chose this alternative and amended the Pension Plan on August 11, 2014 to implement the freeze.

Consequently, the plaintiffs, who are current and retired employees of Acme, sued Acme and Berkshire under ERISA section 502(a)(3). The plaintiffs sought, among other things, to overturn the amendment to the Pension Plan, and to prevent a future reduction in the rate of the employer matching contribution to the 401(k) plan, on the grounds that the amendment and future reduction violated, or would violate, a merger agreement between Berkshire and Justin.   The district court dismissed all of the plaintiffs’ claims, and this appeal ensued.

In Singletary v. United Parcel Service, No. 15-30762 (5th Cir. 2016), Linda Singletary purchased life insurance for herself and her husband through her employer, United Parcel Service. Her husband, Timothy Singletary, was an active-duty soldier in the United States Army. He was killed in a weekend motorcycle accident while off base and not on duty. Prudential Insurance Company of America (“Prudential”), treated as the plan administrator, denied his widow’s claim pursuant to an exclusion in the policy for active-duty servicemen. Mrs. Singletary brought suit, claiming she had no notice of the exclusion and that the exclusion is otherwise unenforceable. The district court granted summary judgment for Prudential and UPS.

The Fifth Circuit Court of Appeals (the “Court”) affirmed the district court’s decision. The Court said that, when reviewing a denial of benefits made by an ERISA plan administrator, the court applies a de novo standard of review, unless the benefit plan gives the administrator discretionary authority to determine eligibility for benefits or to construe the terms of the plan. In this case, the plan gave Prudential, the plan administrator, this discretionary authority. Therefore, the Court reviews Prudential’s decision for abuse of discretion. Further, the Court found that Prudential correctly interpreted the policy’s exclusion as barring the claim. Further, since the instant case is a claim for benefits filed under section 502(a)(1)(B) of ERISA, the Court must only interpret the policy, and the issue of notice of the exclusion does not arise. Nothing renders the exclusion unenforceable, since the applicable Georgia state law is preempted by ERISA. As such, the Court affirmed the district court’s decision.



An annual fee to help pay for the Patient-Centered Outcomes Research Institute (“PCORI”) is imposed by the Affordable Care Act (the “ACA”) on issuers of specified health insurance policies and sponsors of self-insured health plans. In the case of a self-insured multiemployer plan, the sponsor is normally the Board of Trustees which administers the plan and manages its assets.

The payment of the fee must be accompanied by a tax return, Form 720, Quarterly Excise Tax Return (Second Quarter). This form and its instructions are here and here.  The payment may, but need not, be made electronically, through the Electronic Federal Tax Payment System. Similarly, the Form 720 may, but need not, be filed electronically.

This year, the fee and return are due by August 1, 2016. The fee generally applies to major medical coverage. It does not apply to dental and vision coverage which are excepted benefits. For more information on whether a type of insurance coverage or arrangement is subject to the fee, see this Chart.

The New Rev. Proc. The IRS has issued Rev. Proc. 2016-37, its periodic update on the determination letter program for qualified retirement plans. But this year there is a twist-as announced last year, in IRS Announcement 2015-19, the IRS is curtailing the program for individually designed plans. Rev. Proc. 2016-37 summarizes the new rules for individually designed plans as follows.

The New Rules.

–Consistent with IRS Announcement 2015-19, this revenue procedure eliminates, as of January 1, 2017, the staggered five-year remedial amendment cycle system for individually designed plans, currently set forth in Rev. Proc. 2007-44. However, sponsors of Cycle A plans (that is, generally, plan sponsors with employer identification numbers ending in 1 or 6) will continue to be permitted to submit determination letter applications during the period beginning February 1, 2016, and ending January 31, 2017.

In Board of Trustees of the Automobile Mechanics’ Local No. 701 Union and Industry Pension Fund v. Full Circle Group, Inc.,  No. 15‐2497 (7th Cir. 2016), the plaintiff, a board of trustees the (“Board”) that administers a multiemployer defined‐benefit pension plan sponsored by Mechanics’ Local Union No. 701, filed this suit against a company named Full Circle Group and its subsidiaries (together “FCG”) seeking to impose withdrawal liability on them . Here, the Board appeals the district court’s grant of summary judgment in favor of FCG.

In this case, FCG purchased the assets of a shipping and shipyard services company named Hannah Maritime Corporation (“HMC”), whose president was Donald Hannah. HMC had a collective bargaining agreement with the mechanics union that required it to make contributions to the union’s pension fund to finance pensions for HMC’s employees. Hannah had hired his son Mark to work at HMC in 2007. The following year Mark formed FCG, and the new company bought two land leases and shipyard equipment from HMC and also hired HMC’s shipyard service employees. No significant liabilities of HMC were explicitly transferred to the new company—notably, HMC’s withdrawal liability was not transferred. FCG tried to negotiate its own collective bargaining agreement with the union, and though the attempt failed the company contributed to the union’s pension fund until the company’s employees voted to decertify the union in 2009. With HMC having ceased contributing to the fund, the fund assessed withdrawal liability against it. But in the meantime HMC had become insolvent, which prompted this suit in which the fund seeks to impose HMC’s liability to the fund on FCG as HMC’s successor.

In reviewing the case, the Seventh Circuit Court of Appeals (the “Court”) said that the successor could be held liable for the predecessor’s obligations-here the withdrawal liability-if there is substantial continuity between the predecessor’s and successor’s businesses and the latter has notice of the former’s acts. In particular, the Court pointed to its decision in Tsareff v. ManWeb Services, Inc., in which the Court had determined that an asset buyer is on notice of, and therefore subject to, successor liability if he has notice that the seller may be contingently liable for withdrawal liability.  The Court concluded, however, that in this case a trial is needed to establish the facts and determine if the requirements for imposing the liability of FGC are met. Thus, the Court overturned the district court’s summary judgment and remanded the case.

In Brown v. Bluecross Blueshield of Tenn., 2016 U.S. App. LEXIS 11738 (6th Cir. 2016), Healthcare provider Harrogate Family Practice, LLC, and its owner, Amanda Brown (collectively “Harrogate”), brought suit under Section 502 of the ERISA to enjoin Blue Cross Blue Shield of Tennessee (“Blue Cross”) from recouping payments for services Harrogate provided to Blue Cross members. The district court dismissed for lack of subject matter jurisdiction, finding that Harrogate lacked standing under ERISA.

In this case, Harrogate is a healthcare provider that participates in Blue Cross networks, regularly treating patients who are participants and beneficiaries under health-benefit plans administered by Blue Cross. Per industry practice, Harrogate’s patients signed an “Assignment of Benefits Form,” allowing Harrogate to bill Blue Cross directly for payment of services. The arrangement between Harrogate and Blue Cross is governed by a Provider Agreement, which allows Blue Cross to perform post-payment audits and recoup overpayments from Harrogate in the event a payment error is detected. Harrogate objected to certain attempted recoupments, those made for so-called “ALCAT tests” (which purport to identify certain food allergies), and brought this suit.

On appeal, Harrogate argues that it has direct standing to sue as an ERISA beneficiary or, in the alternative, that it acquired derivative standing via an assignment of benefits from Blue Cross members. The Sixth Circuit Court of Appeals (the “Court”) concluded, that while Harrogate does have derivative standing through an assignment of benefits, its claim regarding recoupments falls outside the scope of that assignment, since the assigning patients have no standing to bring this suit. Therefore, the Court affirmed the judgment of the district court.