Recently in ERISA Category

June 29, 2015

ERISA-Eleventh Circuit Holds That Plaintiff Did Not Timely File Her Claim For Long Term Disability Benefits And Is Not Entitled To Toll The Applicable Limitations Period

In Wilson v. The Standard Insurance Company, No. 14-10825 (11th Cir. 2015) (Unpublished Opinion), Harriet Wilson appeals the district court's grant of summary judgment in favor of Standard Insurance Company on her ERISA claim for long term disability benefits.

In this case, the grant of judgment against Wilson was based on her failure to file her lawsuit within the three-year period prescribed in the governing disability policy. She filed thirty-four months after that period expired. She contends that the running of the three-year contractual limitations period should be equitably tolled for the thirty-four months that her lawsuit was late, because Standard's letter denying her claim did not give her notice that the policy imposed a three-year limitations period instead of the six-year period for contract actions that would otherwise have been borrowed from state law. She argues that the contractual limitations period should be equitably tolled until the date she filed her lawsuit because Standard violated an ERISA regulation that required it to provide in the claim denial letter notice of the time limit for filing a lawsuit.

In analyzing this case, the Eleventh Circuit Court of Appeals (the "Court") noted that ERISA does not provide a statute of limitations for suits, such as this one, brought under § 502(a)(1)(B) of ERISA to recover benefits. Thus, a court borrows the most closely analogous state limitations period, unless the parties have contractually agreed to a different one in the ERISA plan. In case of such agreement, the court will follow the plan's limitations provision, unless it determines either that the period is unreasonably short, or that a controlling statute prevents he limitations provision from taking effect. The Court ruled that neither of the two exceptions apply here.

As to Wilson's equitable tolling argument, the Court said that, in this case, the policy's contractual limitations period is enforceable, unless Wilson can establish that she is entitled to equitable tolling, by showing both extraordinary circumstances and diligence in pursuing her rights. In this case, Wilson did not show the required diligence, since she failed to either investigate basic issues that are relevant to her claim or proceed with the claim in a reasonably prompt fashion. Wilson could have requested a copy of the policy, which was central to her claim, and one of whose terms was the contractual limitations period. Her lawsuit easily could have been timely filed if she had exercised even minimal diligence in discovering the terms of the policy. As such, the Court affirmed the district court's summary judgment.

June 25, 2015

ERISA-Sixth Circuit Rules That Equitable Relief Is Available When Plan And SPD Conflict

In Pearce v. Chrysler Group, L.L.C. Pension Plan, No. 13-2374 (6th Cir. 2015) (Unpublished Opinion), the plaintiff, Randy Pearce ("Pearce"), was appealing, among other matters, the district court's finding that the applicable summary plan description (the "SPD") did not materially conflict with the applicable retirement pension plan (the "Pension Plan"), and therefore any motion to amend the complaint to seek equitable relief under ERISA § 502(a)(3) would be futile. Upon review, the Sixth Circuit Court of Appeals (the "Court") reversed the district court's finding.

The Court said that, under ERISA § 502(a)(3), a material conflict between the SPD and the Pension Plan can give rise to a claim for equitable relief. In this case, the Plan requires a participant to be employed at retirement to be eligible for the type of pension benefit Pearce is claiming. The SPD does not contain this requirement. As such, the Pension Plan and SPD are in material conflict, and the district court abused its discretion when it denied Pearce's motion to add equitable claims under ERISA § 502(a)(3). The Court did not express an opinion on the merits of Pearce's ERISA § 502(a)(3) claims, other than to state that they are not futile.

June 24, 2015

ERISA-Eighth Circuit Holds That Plaintiff's Law Suit Was Not Timely Filed

In Munro-Kienstra v. Carpenters' Health and Welfare Trust Fund of St. Louis, No. 14-1655 (8th Cir. 2015), Debra Munro-Kienstra had alleged, under ERISA, wrongful denial of health care benefits by the Carpenters' Health and Welfare Trust Fund of St. Louis' Employee Welfare Benefit Plan (the "Plan"). The Plan stated that any ERISA action for denial of benefits must be brought within two years of the date of denial. Munro-Kienstra learned that she had been denied coverage in July 2009, and she filed this action over two years later in January 2012. The district court concluded that Munro-Kienstra's claim was time barred and granted summary judgment for Carpenters. Munro-Kienstra appeals.

After reviewing the case, the Eighth Circuit Court of Appeals (the "Court"), affirmed the district court's decision. The Court noted that ERISA contains no statute of limitations for actions to recover plan benefits. It said that parties may fill this gap by agreeing to a reasonable limitations period in their contract, i.e., a plan covered by ERISA. In the absence of a contractual limitations period, or if the parties have expressly agreed to incorporate a state law limitations period into a plan, a Court will apply the most analogous state statute of limitations. Here, the Plan provided a two year filing period, and it is undisputed that Munro-Kienstra failed to file her claim within this two year period.

The Court further said that where, as here, the Plan contains its own limitations period, the analogous state statute of limitations-here the 10 year filing period allowed by Missouri- will not apply, unless either (1) the Plan's period is unreasonably short, or (2) a controlling state statute prevents the limitations provision from taking effect. The Court found that neither (1) or (2) applies in this case. As to (2), the Court noted that State law does not apply of its own force to a suit based on federal law, especially a suit under ERISA, with its comprehensive preemption provision. Applying the Missouri statute here would negate an ERISA plan provision, negatively impact the administration of ERISA plans, and create inconsistencies with other ERISA provisions. As such, the Court concluded that the 10 year filing period under Missouri law could not apply, as it would violate ERISA's comprehensive preemption provision. The Court also noted that the ERISA "savings clause", under which ERISA does not preempt state insurance law or laws that apply to multiple employer arrangements, did not apply here, since the Plan is self-insured and a collectively bargained plan.

June 17, 2015

ERISA-Fourth Circuit Holds That Plaintiffs Have Standing To Pursue Claim For Disgorgement Of Profits

In Pender v. Bank of America Corp., No. 14-1011 (4th Cir. June 8, 2015), an employer was deemed to have wrongly transferred assets from a pension plan that enjoyed a separate account feature (i.e., a 401(k) plan) to a pension plan that lacked one (i.e., a defined benefit plan). Although the transfers were voluntary and the employer guaranteed that the value of the transferred assets would not fall below the pre-transfer amount, an Internal Revenue Service audit resulted in a determination that the transfers nonetheless violated the law (specifically, the anti-cutback rule of Code section 411(d)(6) and ERISA section 204(g)(1)) which protects the separate account feature). The plaintiffs, who held such separate accounts and agreed to the transfers, brought suit under ERISA and sought disgorgement of, i.e., an accounting for profits as to, any gains the employer retained from the transaction. The district court dismissed their case, holding that they lacked statutory and Article III standing. The plaintiffs appeal.

In analyzing the case, the Fourth Circuit Court of Appeals (the "Court"), reversed the district court's decision, finding that the plaintiffs have both statutory and Article III standing to pursue their claim for disgorgement. The Court said that, to show statutory standing, the plaintiffs must identify the provision of ERISA that entitles them to bring the claim for the relief they seek. In this case, the Court found that the plaintiffs may bring this suit under section 502(a)(3) of ERISA, since the suit is for "appropriate equitable relief" for the violation of the ERISA anti-cutback rule. Consequently, the plaintiffs have statutory standing.

As to the Article III standing, the Court said that there exist three "irreducible minimum requirements" for Article III: (1) an injury in fact (i.e., a concrete and particularized invasion of a legally protected interest); (2) causation (i.e., a fairly traceable connection between the alleged injury in fact and the alleged conduct of the defendant); and (3) redressability (i.e., it is likely and not merely speculative that the plaintiff's injury will be remedied by the relief plaintiff seeks in bringing suit). The Court found that the plaintiffs met these minimum requirements, due to the employer's retention of profits at the plaintiff's expense (satisfying the injury and cause requirements) and since the court could grant effective relief (satisfying the redressability requirement).

June 9, 2015

ERISA-Second Circuit Upholds Plan Administrator's Denial Of A Disability Pension, Based On The Plan Administrator's Discretion Granted By The Plan To Make Decisions

In Ocampo v. Building Service 32B-J Pension Fund, No. 14-0877 (2nd Cir. 2015), the plaintiff was appealing the district court's summary judgment against her, on the plaintiff's claim under an ERISA plan (the "Plan") for a pension based on her permanent disability. The plaintiff had alleged in district court that the denial of her claim by the plan administrator-here the Board of Trustees of the Plan- was arbitrary and capricious, because the plan administrator determined that her disability was not permanent on the sole basis that the Social Security Administration ("SSA"), in awarding her Social Security disability benefits, had stated that her eligibility for such benefits must be reviewed at least once every three years, rather than once every five years. The district court based its summary judgment against the plaintiff on the ground that the plan at issue conferred on plan administrator discretion to determine an applicant's eligibility for benefits and that defendants' reliance on SSA determinations, policies, and procedures in this matter was not arbitrary or capricious.

The Second Circuit Court of Appeals (the "Court") affirmed the summary judgment. It noted the plaintiff's argument on appeal that the plan administrator exercised no discretion of it's own, but instead essentially delegated to the SSA the determination of whether her disability was permanent, so that its decision should be reviewed de novo. However, the Court rejected this argument. It said that the Plan provides that the plan administrator with discretionary authority to make decisions. Consequently, the denial of benefits by the plan administrator in the exercise of its discretion is reviewable only under the arbitrary-and-capricious standard. Under the facts of the case, reviewed by the Court, the decision that the plaintiff is not eligible for a disability pension under the Plan was made by the plan administrator, rather than the SSA. Further, at least two factors considered by the plan administrator-the plaintiff's failure to demonstrate the permanence of her disability and her failure to show that she suffered a permanence of disability while working in covered employment-prove that the plan administrator's denial of the pension benefit was not arbitrary or capricious.

June 8, 2015

ERISA-Second Circuit Rules That Nunc Pro Tunc Orders Constitute QDROs, Even Though Issued After The Plan Participant's Death

In Yale-New Haven Hospital v. Nicholls, No. 13-4725 (2nd Cir. 2015), Yale‐New Haven Hospital brought this suit-an interpleader action under ERISA- to resolve competing claims by Barbara Nicholls and Claire Nicholls to certain funds of the late Harold Nicholls held in four retirement plans. In this case, Barbara Nicholls, the surviving spouse of Mr. Nicholls, argues that the funds are payable to her because she is the named beneficiary in the plan documents. Claire Nicholls, the former spouse of Mr. Nicholls, contends that a portion of those funds are instead payable to her. She argues that three state court orders--her divorce settlement agreement and two nunc pro tunc orders entered after Mr. Nicholls's death--constitute qualified domestic relations orders ("QDROs") within the meaning of ERISA and thus validly assign those funds to her. The district court granted summary judgment in favor of Claire Nicholls, on the ground that the divorce settlement constitutes a QDRO applicable to all four retirement plans, so that she is entitled to the portion of the funds she is claiming.

Upon reviewing the case, the Second Circuit Court of Appeals (the "Court") held that that the divorce settlement agreement does not constitute a QDRO, because the agreement fails to comply with the five requirements of 29 U.S.C. § 1056(d)(3)(C). The Court noted that three of the retirement plans were named in the nunc pro tunc orders, while the fourth retirement plan was not. The Court held, as to the three named retirement plans, that the nunc pro tunc orders-which comply with the requirements of § 1056(d), even though the orders were issued after Mr. Nicholl's death-constitute valid QDROs that assign funds to Claire Nicholls. As to the fourth, unnamed retirement plan, the Court held that the nunc pro tunc orders do not constitute valid QDROs, since the orders failed to name that plan. As such, the Court upheld the district court's summary judgment as to the three named retirement plans, granting Claire the funds claimed under those plans, but reversed the summary judgment as to the fourth, unnamed retirement plan, thereby denying Claire's claim.

June 4, 2015

ERISA-First Circuit Rules That Termination Of Long-Term Benefits Is Arbitrary and Capricious, And Upholds A Statutory Penalty For The Failure To Produce Documents

In McDonough v. Aetna Life Insurance Company, No. 14-1293 (1st Cir. 2015), the case was brought under ERISA and presented two issues. The first concerned the operation of an "own occupation" test within the definition of disability contained in a long-term disability ("LTD") plan (the "Plan"). The second concerned the operation of ERISA's penalty provision for late disclosure or non-disclosure of relevant plan documents. See 29 U.S.C. § 1132(c)(1)(B). Upon review, the First Circuit Court of Appeals (the "Court") vacated the district court's entry of summary judgment against the plaintiff, with respect to the termination of disability benefits, and remanded that issue for further consideration by the claims administrator, which was Aetna. At the same time, the Court affirmed the district court's imposition of a $5,000 penalty for the belated production of a plan document.

As to the "own occupation" test, to be considered disabled under the Plan, the individual must (among other things) be unable to perform the material duties of his own occupation solely because of disease or injury. The Court determined that the administrator, although entitled to a deferential review, was arbitrary and capricious in terminating the LTD benefits based on its determination that the plaintiff failed to meet this test. The Court found that the administrator's termination decision was not a reasoned one. The own occupation test depends on how the occupation is normally performed in the national economy, a fact which the administrator ignored. Since this is a close case-based on both voluminous and conflicting medical evidence-the remand to the administrator is warranted.

As to the $5,000 penalty, the district court imposed the penalty on Aetna for the late production of the applicable insurance policy. The policy was provided 1,157 days late, and amounted to about $4 per day. The Court upheld the amount of the penalty, finding that the district court had not abused its discretion in determining this amount. The district court had found that the lateness was attributable to inattentiveness, and not bad faith, and the plaintiff was not prejudiced by the late receipt of the policy.

June 2, 2015

ERISA-Ninth Circuit Rules That An Appeal Of A Benefit Denial Is Timely When Filed On The Monday Following The Saturday On Which The 180-Day Period For Appealing Had Ended

In Legras v. Aetna Life Insurance Company, No. 12-56541 (9th Cir. 2015), a panel of judges in the Ninth Circuit Court of Appeal (the "Panel") reversed the district court's dismissal of an action challenging the denial of an application for continued long-term disability benefits under ERISA. The Panel held that the district court erred in dismissing the action for failure to exhaust administrative remedies. The plaintiff's internal appeal from the denial of his benefits application was denied as untimely under a 180-day appeal period. The Panel held that the plaintiffs' notice of internal appeal was timely because it was filed on the Monday after the Saturday on which the 180-day period ended. The Panel adopted this method of counting time as part of ERISA's federal common law.

May 26, 2015

ERISA-Seventh Circuit Dismisses Case Since Plaintiffs Failed To Exhaust Administrative Remedies

In Orr v. Assurant Employee Benefits, No. 14-2370 (7th Cir. 2015), the plaintiffs, Danielle and Hailey Orr, are the daughters of Daniel Orr, who died in a motorcycle accident on August 7, 2012. As Daniel Orr's beneficiaries, Danielle and Hailey filed claims seeking benefits payable under a Group Life Insurance Policy, which is governed by ERISA, and which Union Security Insurance Company ("USIC") issued to Daniel Orr's former employer, Modern 1 Group of Companies, LLC. USIC denied the claim, and the Orrs brought this suit. The district court granted summary judgment against the Orrs, on the grounds that they had failed to exhaust their administrative remedies prior to bringing the suit. The Orrs appeal.

Upon reviewing the case, the Seventh Circuit Court of Appeals (the "Court") agreed with the district court that the Orrs failed to exhaust their administrative remedies prior to filing suit. USIC's "Life Claims Denial Review Procedure" requires that a claimant seeking review of a claim denial complete two levels of internal review prior to filing a lawsuit. The Procedure unmistakably requires the claimant to submit a request for review in writing, which the Orrs failed to do. Also, the Orrs failed to show why the failure to exhaust administrative remedies should be excused. As such, the Court upheld the district court's summary judgment.

May 21, 2015

ERISA-Second Circuit Rules That Plan Administrator's Denial Of Benefits Claim Was Not Arbitrary Or Capricious

In Roganti v. Metropolitan Life Insurance Company, Nos. 13-4532-cv (L), 13-4684-cv (XAP) (2nd Cir. 2015), the plaintiff, Ronald Roganti ("Roganti"), was a successful executive with defendant Metropolitan Life Insurance Company ("MetLife") until 2005, when he resigned in the face of pay reductions that he claims were levied in retaliation for his opposition to unethical business practices. Roganti brought arbitration proceedings against MetLife before the Financial Industry Regulatory Authority ("FINRA"), seeking, among other things, wages that he would have been paid but for the retaliatory pay reductions, as well as compensation for the decreased value of his pension, which was tied to his wages. The FINRA panel awarded Roganti approximately $2.49 million in "compensatory damages," but its award did not clarify what that sum was compensation for. Roganti then filed a benefits claim with MetLife, arguing that the award represented back pay and that his pension benefits should be adjusted upward as if he had earned the money while he was still employed. MetLife denied the claim because the FINRA award did not say that it was, in fact, back pay. Roganti brought this lawsuit.

In analyzing the case, the Second Circuit Court of Appeals (the "Court") noted that ERISA creates a private right of action to enforce the terms of a benefit plan. ERISA section 502(a)(1)(B). The pension plans covering Roganti plans vest interpretive discretion in the plan administrator, which means that the plan administrator's benefits decision is conclusive unless it is arbitrary and capricious. MetLife is the plan administrator. After a summary bench trial on stipulated facts, the district court determined that MetLife's denial of Roganti's claim was arbitrary and capricious because it was clear from the arbitral record that the award did represent back pay. The Court said that it did not agree. Instead, the Court concluded that MetLife's denial of Roganti's claim was not arbitrary and capricious, and that MetLife is therefore entitled to judgment in its favor as to his benefits claim.

Why this conclusion? The Court found that MetLife's rationale for denying Roganti's claim--i.e., that it was impossible to determine whether, or the extent to which, the FINRA award represented back pay--was not, in fact, unreasonable, and therefore met the arbitrary and capricious standard.


May 20, 2015

ERISA-Fifth Circuit Rules That Administrator Is Not An ERISA Fiduciary

In Humana Health Plan, Incorporated v. Nguyen, No. 14-20358 (5th Cir. 2015), the defendant, Patrick Nguyen ("Nguyen"), was appealing from the district court's order granting summary judgment in favor of the plaintiff, Humana Health Plan, Inc. ("Humana").

In this case, Nguyen was a participant in the API Enterprises Employee Benefits Plan (the "Plan"), an ERISA-governed employee welfare plan established by API Enterprises, Inc. ("API"). API had entered into a Plan Management Agreement ("PMA") with Humana, through which Humana had agreed to serve as "Plan Manager" and to provide various administrative services to the Plan. Two of Humana's tasks for the Plan were subrogation and recovery services. One issue arising in the case: is Humana an ERISA fiduciary with respect to the Plan under section 3(21) of ERISA(if not, it can't sue Nguyen under ERISA section 502(a)(3))? The Fifth Circuit Court of Appeals (the "Court") determined that Humana is not an ERISA fiduciary. Why?

In analyzing the case, the Court focused on the specific role that Humana undertook regarding subrogation and recovery services for the Plan, and whether API provided a framework of policies and procedures to guide Humana, and supervised Humana as it executed its task. First, the relevant language of the PMA pertaining to these services merely defines the range of potential disputes covered by the contract; it says nothing about who has the right to finally decide whether to investigate or pursue a claim. This language does not show that Humana had discretion over the Plan or its assets. As such, the subrogation and recovery language in the PMA does not show that Humana is an ERISA fiduciary of the Plan. Second, even if the Court interpreted the PMA to give Humana broad power, there is no explanation as to why Humana is not a ministerial agent, and thus not a fiduciary, or why it how Humana exercised discretion as described in section 3(21)(A)(i) and (iii).

May 19, 2015

ERISA-Supreme Court Rules That Fiduciaries Have A Continuing Duty To Monitor Plan Investments For Purposes Of Determining Whether ERISA's Statute Of Limitations Has Expired

In Tibble v. Edison International, No. 13-550 (U.S. Supreme Court 2015), in 2007, the plaintiffs, beneficiaries of the Edison 401(k) Savings Plan (the "Plan"), sued Plan fiduciaries, defendants Edison International and others, to recover damages for alleged losses suffered by the Plan from alleged breaches of the defendants' fiduciary duties. The plaintiffs argued that the defendants violated their fiduciary duties with respect to three mutual funds added to the Plan in 1999 and three mutual funds added to the Plan in 2002. They argued that the defendants acted imprudently by offering these six higher priced retail-class mutual funds as Plan investments, when materially identical lower priced institutional-class mutual funds were available.

Because ERISA requires a breach of fiduciary duty complaint to be filed no more than six years after "the date of the last action which constitutes a part of the breach or violation" or "in the case of an omission the latest date on which the fiduciary could have cured the breach or violation," under section 413 of ERSA, the District Court held that the plaintiffs' complaint as to the 1999 funds was untimely because they were included in the Plan more than six years before the complaint was filed, and the circumstances had not changed enough within the 6- year statutory period to place the defendants under an obligation to review the mutual funds and to convert them to lower priced institutional-class funds. The Ninth Circuit affirmed, concluding that the plaintiffs had not established a change in circumstances that might trigger an obligation to conduct a full due diligence review of the 1999 funds within the 6-year statutory period.

Upon its review of the case, the U.S. Supreme Court held that the Ninth Circuit erred by applying section 413's statutory bar to a breach of fiduciary duty claim based on the initial selection of the investments without considering the contours of the alleged breach of fiduciary duty. ERISA's fiduciary duty is "derived from the common law of trusts, which provides that a trustee has a continuing duty--separate and apart from the duty to exercise prudence in selecting investments at the outset--to monitor, and remove imprudent, trust investments. So long as a plaintiff's claim alleging breach of the continuing duty of prudence occurred within six years of suit, the claim is timely.

As such, the Supreme Court remanded the case back to the Ninth Circuit to consider the plaintiffs' claims that the defendants breached their duties within the relevant 6-year statutory period under section 413, recognizing the importance of analogous trust law.

May 12, 2015

ERISA-Seventh Circuit Reverses Decision Pertaining To Benefit Calculation For Imprecision

In Reilly v. Continental Casualty Co., No. 14-2888 (7th Cir. 2015), Michael Reilly ("Reilly") had participated in a pension plan offered by Continental Casualty Co. ("Continental"). Continental administers its own defined-benefit plan, which provides that the pension depends on the highest average compensation in any 60-month period of employment. "Compensation" is a defined term: regular salary, incentive compensation, and deferred compensation deposited in §401(k) plans are in (as are some other items), while educational bonuses, referral bonuses, overseas allowances, and some other items are out.

In this case, when Reilly left Continental's employ in 1999, he received a statement of his qualifying compensation that implied a monthly benefit of about $5,400 starting in 2012, when he would turn 65 and become eligible. Come 2012, however, Continental sent Reilly a different calculation, showing lower compensation and entitlement to roughly $4,200 a month. When internal appeals did not avail him, Reilly filed this suit under §502(a)(1)(B) of ERISA. The district judge concluded that Continental's decision was arbitrary and capricious (which the parties agree is the governing standard), and the court ordered it to pay monthly benefits at the $5,400 level. Continental appeals, contending in this court that its calculation should have been sustained, and if not that the district court should have remanded for a new calculation rather than ordering payment at the rate projected in 1999.

In analyzing the case, the Seventh Circuit Court of Appeals (the "Court") said that the district court's decision cannot stand, because Reilly has not tried to show that $5,400 is the only possible outcome of a proper calculation process. All that has been established to date is that Continental's 2012 decision is unreliable. By working through the original compensation numbers, the parties may be able to agree what the right pension is under the Plan's terms. If agreement is elusive, the district court must remand this matter to Continental so that the administrator can make a fresh calculation, which then could be subjected to another round of judicial review. Accordingly, the Court reversed the district court's decision, and remanded the case for further proceedings consistent with its opinion.

May 7, 2015

ERISA-Tenth Circuit Discusses Statute Of Limitations For Bringing A Claim Of Breach Of Fiduciary Duty Under Section 413 of ERISA

In Fulghum v. Embarq Corporation, No. 13-3230 (10th Cir. 2015), the plaintiffs represent a class of retirees formerly employed by Sprint-Nextel Corporation ("Sprint"), Embarq Corporation ("Embarq"), or a predecessor and/or subsidiary company of either Embarq or Sprint (such companies being the defendants). The plaintiffs brought this suit after the defendants altered or eliminated health and life insurance benefits for retirees. Plaintiffs claimed, among other things, that the defendants had breached their fiduciary duty by misrepresenting the terms of multiple welfare benefit plans. One issue faced by the Tenth Circuit Court of Appeals (the "Court") was whether the statute of limitations for bringing this claim had expired. Here is what the Court said on this issue:

This Court has previously held that section 413 of ERISA governs the time for filing a breach of fiduciary duty claim arising from an alleged violation of the duties imposed on ERISA plan fiduciaries by section 404(a)(1) of ERISA. Section 413 sets out the following six-year limitations period:

No action may be commenced under this subchapter with respect to a fiduciary's breach of any responsibility, duty, or obligation under this part, or with respect to a violation of this part, after the earlier of--
(1) six years after (A) the date of the last action which constituted a part of the breach or violation, or (B) in the case of an omission the latest date on which the fiduciary could have cured the breach or violation. . . .

That is, a plaintiff has six years to file his or her suit for breach of fiduciary duty--the six-year period being measured from (1) the date of the last action constituting a part of the breach or (2) the latest date on which the breach could have been cured by the fiduciary.

Section 413 has a separate three-year statute of limitations which is not applicable here. But section 413 also says that in the case of fraud or concealment, a civil enforcement action may be commenced not later than six years after the date of discovery of the breach or violation. When does the "fraud or concealment" provision apply? The Circuit Courts are split. This Court believes that this provision is a legislatively created exception to the general six-year rule, rather than being a separate statute of limitations. This exception generally applies when either: (1) the alleged breach of fiduciary duty involves a claim that the defendant made a false representation of a matter of fact which deceives, and is intended to deceive, another person that this person acts upon it to his legal injury or (2) the defendant conceals the alleged breach of fiduciary duty.

There remains the question here of whether the breach of fiduciary duty claims raised by Plaintiffs fall under the fraud or concealment exception to the general six-year rule. There is no concealment here. And the Court remanded the case back to the district court to determine if the plaintiffs' claims are based on a theory of fraud.

May 6, 2015

ERISA-Ninth Circuit Rules That Assets Held In A Savings Account May Be Considered To Be Held In Trust For Purposes Of ERISA

In Barboza v. California Professional Association of Firefighters, Nos. 11-15472, 11-16024, 11-16081, and 11-16082 (9th Cir. 2015), the Ninth Circuit Court of Appeals (the "Court") was required to interpret, among others, the requirement in section 403(a) of ERISA that all assets of an employee benefit plan shall be held in trust by one or more trustees (sometimes called the "hold in trust" requirement).

At issue is a long-term disability plan (the "Plan"), which is an employee welfare benefit plan governed by ERISA, and which receives its funding exclusively from participants and pays all benefits solely from its assets. The Plan functions as follows. First, each participant makes a monthly contribution to the Plan. These contributions are deposited into a Wells Fargo Bank checking account. The benefits are paid in the form of a check drawn on the Wells Fargo account for the appropriate amount. Plan expenses, including administrative service fees, are paid from the assets in the Wells Fargo account. The question: are the Plan assets being held in trust?

In analyzing the case, the Court said that ERISA requires, under section 403(a), that generally all assets of an employee benefit plan must be held in trust by one or more trustees. 29 U.S.C. § 1103(a). Further, such trustee or trustees must be either named in the trust instrument or in the plan instrument or appointed by a person who is a named fiduciary. The Court said further that, to meet these requirements, a person (legal or natural) must hold legal title to the assets of an employee benefit plan with the intent to deal with these assets solely for the benefit of the members of that plan. Such a person is the "trustee," and the resulting relationship between the trustee and the participants in the plan with respect to a plan's assets is a "trust" for purposes of section 403(a). The Court noted that Barboza, and the Department of Labor (as amicus curiae), argue, in effect, that compliance with section 403(a) requires a party to record its responsibilities with respect to the assets of an employee benefit plan in a document that is entitled "trust instrument," uses the terms "trust" and "trustee," and expressly states that the party is holding the assets "in trust." Further, the Department appears to interpret its regulation at 29 C.F.R. § 2550.403a-1 as requiring parties to use express words of trust to comply with section 403(a).

However, the Court said that it rejects the argument, and concluded that the Plan assets held in the Wells Fargo account here satisfies the held in trust requirement. The Plan instrument (i.e., the official plan document which sets forth the Plan's terms) requires the California Association of Professional Firefighters ("CAPF"), the Plan's manager, to hold legal title to all property, monies and contract rights as well as all of the funds maintained in connection with the Plan. CAPF holds these assets for the Plan on behalf of the participants. The Plan instrument thus establishes a fiduciary relationship between CAPF, as the trustee, and the participants, as beneficiaries, with respect to the property contributed to the Plan (the trust res); this constitutes a trust according to its common law definition. Because the Plan instrument here is a written instrument that establishes a trust relationship, it is a written trust instrument for purposes of section 403(a).