In Deschamps v. Bridgestone Americas, Inc. Salaried Employees Retirement Plan, No. 15-6112 (6th Cir. 2016) (Unpublished), the following occurred. After working for ten years at a Bridgestone plant in Canada, Andre Deschamps (“Deschamps”) transferred to a Bridgestone facility in the United States. Prior to accepting this position he expressed concern about losing pension credit for his ten years of employment in Canada. But upon receiving assurances from members of Bridgestone’s management team that he would keep his ten years of pension credit, Deschamps accepted the position. For over a decade, Deschamps received various written materials confirming that his first date of service for pension purposes would be August 8, 1983. He even turned down employment opportunities from a competitor at a higher salary because of the purportedly higher pension benefits he would receive at Bridgestone.

However, in 2010, Deschamps discovered that Bridgestone had changed his first service date to August 1, 1993, the date he began working at the American plant. After failed attempts to appeal this change through Bridgestone’s internal procedures, Deschamps brought a suit against Bridgestone to restore August 8, 1983 as his first service date for pension purposes, alleging claims of equitable estoppel, breach of fiduciary duty, and an anti-cutback violation of ERISA.  The district court granted summary judgment for Deschamps on these three claims.

Upon review, the Sixth Circuit Court of Appeals (the “Court”) affirmed the district court’s grant of summary judgement in Deschamps’s favor on his equitable estoppel, breach of fiduciary duty, and anti-cutback claims, and remanded the case for further proceedings as may be appropriate. In particular, the Court concluded that the text of the Bridgestone plan (the Plan”) is at worst ambiguous, but at best, favors Deschamps’s argument that he was a covered employee in 1983 under the classification of “supervisor.” It is not untenable that Deschamps, in his capacity as a maintenance manager, was a supervisor under the language of the Plan. Further, it is undisputed that as a result of the change in the interpretation of this provision that excluded foreign employees from being classified as covered employees, Deschamps’s benefits were decreased. Therefore, Deschamps has established an anti-cutback violation and the district court did not err in granting summary judgment in his favor on this claim.

In Announcement 2016-32, in connection with the changes recently made to its determination letter program for qualified retirement plans, the IRS solicits comments on facilitating compliance with the requirements which apply to such plans. Here is what the IRS said:

This announcement requests comments on ways in which the Treasury Department and IRS can improve compliance with plan qualification requirements by making it easier for plan sponsors to satisfy requirements for qualified plan documents, particularly in light of the changes to the determination letter program described in Rev. Proc. 2016-37. That Rev. Proc. provides, in part, that the five-year staggered remedial amendment cycle system will be eliminated effective January 1, 2017. Rev. Proc. 2016-37 further provides that a sponsor of an individually designed plan will be permitted to submit a determination letter application only for initial qualification, for qualification upon plan termination, and in certain other circumstances to be determined by Treasury and the IRS.

In the Announcement, the IRS asks for comments on the following specific topics:

In Brown, III v. United of Omaha Life Insurance Company, No. 15-4293 (6th Cir. 2016) (Unpublished), plaintiff Lloyd Brown III (“Brown III”) alleged that defendants United of Omaha Life Insurance Company (“United”) and West Side Transport, Inc. (“West Side”) wrongfully denied him life insurance benefits. Brown III asserted contractual and equitable state law claims and, in the alternative, causes of action under ERISA §§ 502(a)(1) (claim for benefits) and  502(a)(3) (claim for equitable relief).

The district court concluded that Brown III’s state law claims against United and West Side were preempted by ERISA, granted summary judgment to Brown III on the merits of his ERISA § 502(a)(1) claim against United, and found that Brown III was not entitled to relief under ERISA § 502(a)(3) because § 502(a)(1)(B) fully provides a means for the relief sought. The district court then awarded Brown III $181,666.67 in damages for benefits due him under United’s life insurance policy, prejudgment interest, and $27,040.00 in attorneys’ fees. United appeals the judgment and remedies awarded.

Upon review, the Sixth Circuit Court of Appeals (the “Court”) affirmed the district court’s grant of summary judgment to Brown III on the merits of his § 502(a)(1) claim for benefits, since United’s reason for denying the benefits-failure to submit certain evidence of insurability-was arbitrary and capricious and could not be upheld. The Court also affirmed the district court’s awards of prejudgment interest and attorneys’ fees. However, the Court reversed the district court’s summary judgment to United on Brown III’s § 502(a)(3) claim. The Court said that, while a plaintiff cannot “repackage” a claim for benefits under 502(a)(1) into a claim for equitable relief under 502(a)(3) and  thus recover twice, here, the plaintiff can pursue the claim for equitable relief if it is based on an injury that is separate and distinct from the denial of benefits, or if the claim for benefits is inadequate to make the plaintiff whole. The Court then remanded the case back to the district court to determine whether equitable relief is available.

Following yesterday’s blog, here is what the IRS says on correcting common hardship distribution errors:

Sometimes, plan sponsors don’t follow the terms of their plan document when it comes to hardship distributions. Some of the most common errors are:

  1. making hardship distributions even though they aren’t permitted by the plan document,

Here is what the IRS says in this guidance:

Although not required, a retirement plan may allow participants to receive hardship distributions. A distribution from a participant’s elective deferral account can only be made if the distribution is both:

  • Due to an immediate and heavy financial need.

In Whitley v. BP, No.15-20282 (5th Cir., 2016), a stock drop suit, the question on appeal is whether the district court erred in holding that the plaintiff stockholders’ amended complaint stated a plausible claim under the pleading standards of the Supreme Court’s 2014 decision in Fifth-Third Bancorp v. Dudenhoffer. Upon reviewing the case, the Fifth Circuit Court of Appeals (the “Court”) determined that the district court did err, the Court reversed the holding and remanded the case.

In this case, BP, p.l.c. (“BP”) is a multinational oil and gas company headquartered in London, England. BP offered its employees a choice of investment and savings plans regulated by ERISA. These plans included the BP Stock Fund—an employee stock ownership plan (“ESOP”) comprised primarily of BP stock—as an investment option. On April 20, 2010, the BP-leased Deepwater Horizon offshore drilling rig exploded, causing a massive oil spill in the Gulf of Mexico and a subsequent decline in BP’s stock price. The BP Stock Fund lost significant value, and the affected investors filed this stock drop suit on June 24, 2010, alleging various breaches of fiduciary duty under ERISA. The District Court had ruled that an amended complaint of the plaintiffs stated a plausible claim of breach.

However, the Court concluded that, to state a plausible claim of breach under Fifth-Third Bancorp, the plaintiffs’ must-in the complaint- offer a proposed alternative to investing in and holding the BP Stock, and the proposed alternative must be one that a prudent fiduciary in the same circumstances would not have viewed as more likely to harm the fund than to help it. But here, said the Court, the district court stated that it could not determine, on the basis of the pleadings alone, that no prudent fiduciary would have concluded that the alternatives would do more good than harm. This statement is not in accord with Fifth-Third Bancorp. Under the Fifth-Third Bancorp formulation, the plaintiffs bear the significant burden of proposing an alternative course of action so clearly beneficial that a prudent fiduciary could not conclude that it would be more likely to harm the fund than to help it. They must offer facts to support the proposal. In this case, the plaintiff’s amended complaint fails to meet these requirements. Thus, the reversal by the Court.

Yesterday’s blog summarized the changes to the DOL’s overtime payment rules. The primary change is the increase in the salary dollar threshold for being treated as exempt from the overtime rules. Apparently, a large number of states and other organizations don’t like these changes, and have filed suit to block them. The the U.S Secretary of Labor has issued the following News Release, containing the DOL’s response to these suits:

WASHINGTONU.S. Secretary of Labor Thomas E. Perez issued the following statement on the filing of lawsuits by a group of states, the U.S. Chamber of Commerce and other organizations in the Eastern District of Texas challenging the update to the Fair Labor Standards Act’s overtime rules for white-collar, salaried workers:

 “We are confident in the legality of all aspects of our final overtime rule. It is the result of a comprehensive, inclusive rule-making process. Despite the sound legal and policy footing on which the rule is constructed, the same interests that have stood in the way of middle-class Americans getting paid when they work extra are continuing their obstructionist tactics. Partisan lawsuits filed today by 21 states and the U.S. Chamber of Commerce seek to prevent the Obama administration from making sure a long day’s work is rewarded with fair pay. The overtime rule is designed to restore the intent of the Fair Labor Standards Act, the crown jewel of worker protections in the United States. The crown jewel has lost its luster over the years: in 1975, 62 percent of full time salaried workers had overtime protections based on their pay; today, just 7 percent have those protections – meaning that too few people are getting the overtime that the Fair Labor Standards Act intended. I look forward to vigorously defending our efforts to give more hardworking people a meaningful chance to get by.”

The U.S. Department of Labor (the “DOL”) has issued a “Final Rule”, which revises its overtime pay regulations. The DOL has also issued FAQs which discusses the Final Rule. Highlights of the FAQs include the following:

The Final Rule.  The Final Rule updates the regulations for determining whether white collar salaried employees are exempt from the Fair Labor Standards Act’s minimum wage and overtime pay protections. They are exempt if they are employed in a bona fide executive, administrative or professional capacity, as those terms are defined in the Department of Labor’s regulations at 29 part 541.

Qualifying For The Exemptions.  To qualify for exemption, a white collar employee generally must:

In O’Shea v. UPS Retirement Plan, No. 15-1923 (1st Cir. 2016), plaintiff Brian O’Shea (“O’Shea”) worked for defendant United Parcel Service of America, Inc. (“UPS”) for 37 years. As an employee of UPS, he participated in the UPS Retirement Plan (the “Plan”). Unfortunately, in 2008, O’Shea was diagnosed with cancer. He became eligible for retirement in 2009, and decided to retire at the end of that year. Upon the advice of UPS human resources, who was not aware of his condition, O’Shea decided to maximize his time on payroll by taking his seven weeks of accrued vacation and personal time and, thus, delay his official retirement date.

As such, he submitted his retirement application on January 7, 2010, his last day of work, and indicated that his annuity starting date for his benefit under the Plan would be March 1, 2010, the day after his official retirement date of February 28, 2010. He chose the “Single Life Annuity with 120-Month Guarantee” as the payment form, and named his four children as the beneficiaries. Nowhere in the retirement benefits application, and at no point during his consultation with UPS human resources, was it made explicit that surviving to the annuity starting date (i.e., March 1, 2010, the day after his official retirement date) was a prerequisite to the ten-year payment guarantee.

O’Shea passed away on February 21, 2010, one week before his official retirement date, and eight days before his annuity starting date. The Plan refused to pay the pension benefit, i.e., the 120 month of payments, since O’Shea failed to survive to the annuity starting date, offering only a qualified pre-retirement survivor annuity to O’Shea’s spouse, if he had one. The four O’Shea children, the named beneficiaries of the 120 months of payment, brought this suit against the Plan claiming that the pension benefit should be paid to them. The district court decided in favor of the Plan, concluding that denial of the pension benefit was a construction of the Plan terms which was plausible and correct in light of the plain language of the Plan’s terms. The First Circuit Court of Appeals (the “Court”) agreed with the district court and confirmed its decision.

The U.S. Department of Labor (the “DOL”) made this announcement in a News Release. Here is what the News Release said:

The DOL has announced a two-month extension of the comment period on the Form 5500 Modernization Proposals. The department, the Internal Revenue Service and the Pension Benefit Guaranty Corporation published a Notice of Proposed Revision of Annual Information Return/Reports in the Federal Register on July 21, 2016. The department also published a separate, but related Notice of Proposed Rulemaking on the same day.

The forms revisions and regulatory amendments were proposed as part of a project to improve and modernize Form 5500 annual return/reports filed by employee benefit plans. The forms revisions and regulatory amendments generally are being coordinated with a recompete of the contract for the ERISA Filing Acceptance System II – the wholly electronic system, commonly known as EFAST2, that is operated by a private-sector contractor for the processing of Form 5500/5500-SF return/reports.