ERISA Lawyer Blog

In Advisory Opinion 2010-01A, the Department of Labor (the "DOL") answered a question, posed by the Teachers Insurance and Annuity Association of America and College Retirement Equities Fund the "TIAA-CREF"). This question is whether the TIAA-CREF "Traditional Annuity" is a fully allocated contract for annual reporting purposes within the meaning of the ERISA regulations at 29 C.F.R. § 2520.104-44(b)(2) and the Form 5500 Instructions. The answer to this question determines whether the assets held in the Traditional Annuity must be reported as plan assets on the Form 5500 and applicable schedules and attachments.

TIA-CREFF offers the Traditional Annuity as an investment option for participants in funding vehicles it makes available for 403(b) plans and 401(k) plans. Prior to payout, for each contribution or "premium" received, the Traditional Annuity provides a guarantee of principal, a guaranteed minimum interest rate (generally 3 percent but in some recent contracts between 1 percent and 3 percent), and the potential for additional interest which may be declared by TIAA-CREF in its discretion.

Section 29 C.F.R. § 2520.104-44(b)(2) provides a limited exemption for a plan from certain reporting requirements, including the need to have an accountant examine the plan's financial statements, when the plan's benefits are, generally, paid exclusively through allocated insurance contracts issued by an insurance company which guarantees the benefit payments. The 2008 Form 5500 Instructions further provide that this plan need not report the value of the allocated contracts on Part I of the Schedule H or I (i.e., as being plan assets). Those Instructions reiterate the DOL's longstanding view that "allocated" contracts include only those contracts under which an insurance company immediately assumes "fixed dollar obligations", and that the reporting exemption is premised on the fact that under these contracts the plan has effectively transferred the risk for the payment of benefits accrued to that date to the insurer.

After examining the Traditional Annuity, the ERISA regulations and Form 5500 Instructions, the Advisory Opinion concluded that the Traditional Annuity is not a fully allocated contract within the meaning of 29 C.F.R. § 2520.104-44(b)(2). This obtains because upon payment of each contribution or "premium" to the Traditional Annuity, TIAA-CREF does not unconditionally guarantee to provide a retirement benefit of a certain amount, or a "specific dollar benefit". Rather, the Traditional Annuity guarantees only a minimum rate of return, based on the contributions or premiums received and a minimum rate of interest. The value attributable to each contribution or premium payment can increase when additional interest is declared. Since the Traditional Annuity is not a fully allocated contract, any accumulations with respect to the contributions or premiums it receives must be reported as plan assets on Form 5500.

In Gorzynski v. JetBlue Airways Corp., No. 07-4618 (2nd Cir. 2010) , the plaintiff was appealing the dismissal, on summary judgment, of her employment discrimination action based on claims, among others, that she suffered a hostile work environment due to sexual harassment (the "Claim"). The plaintiff had complained to her supervisor, who was also her harasser, regarding the allegedly hostile work environment. One issue faced by the Court was whether, since the employer's sexual harassment policy provided that the plaintiff could have complained to persons other than her supervisor, the employer is, as a matter of law, entitled to the Faragher/Ellerth affirmative defense. The Court ruled that the employer is not so entitled.

The Court said that when, as here, the alleged harasser is in a supervisory position over the plaintiff, the objectionable conduct giving rise to the Claim is automatically imputed to the employer. But, subject to proof by a preponderance of the evidence, the employer may raise the Faragher/Ellerth affirmative defense to liability or damages from the Claim . This defense will protect the employer if two elements are present: (1) the employer exercised reasonable care to prevent and promptly correct any discriminatory or harassing behavior, and (2) the plaintiff employee unreasonably failed to take advantage of any preventive or corrective opportunities provided by the employer or to avoid harm otherwise. In this case, element (1) was satisfied, since the employer maintained a formal, written sexual harassment policy that was contained in an employee handbook.

As to element (2), the employer was required to demonstrate that the plaintiff unreasonably failed to take advantage of the policy described in the handbook, when the plaintiff complained only to the harassing manager-who failed to address her complaints-while the policy allowed the plaintiff to file a complaint with some one other than the harassing supervisor. Here, the Court ruled that there is no requirement that a plaintiff must exhaust all possible avenues made available, so that an employer is not, as a matter of law, entitled to the Faragher/Ellerth affirmative defense merely because an employer's sexual harassment policy offers such avenues. Rather, the facts and circumstances of each case must be examined to determine whether, by not pursuing other avenues provided in the policy, the plaintiff unreasonably failed to take advantage of the employer's preventative measures, so that element (2) is met. According to the Court, this examination is for a jury, and the Court remanded the case back to the District Court for further proceedings.

The Employee Benefits Security Administration (the "EBSA") has made available on its website a Fact Sheet which discusses the proposed regulation the Department of Labor is publishing to implement certain provisions of the Pension Protection Act of 2006 (the "PPA"). These provisions created a new statutory exemption from the prohibited transaction rules for giving investment advice to participants in 401(k)-type plans and individual retirement accounts (IRAs). An earlier final regulation, and a related class exemption, pertaining to these provisions were withdrawn in November, 2009 in response to concerns about the adequacy of the class exemption's conditions to mitigate the potential for investment adviser self-dealing.

The Fact Sheet says the following about the new proposed regulations:

• The proposed rules are limited to the implementation of the PPA statutory exemption relating to investment advice.
• The proposed regulation allows investment advice to be given under the statutory exemption in two ways. One is through the use of a computer model certified as unbiased. The other way is through an adviser compensated on a "level-fee" basis (i.e., fees do not vary based on investments selected by the participant).
• Several other requirements must also be satisfied, including disclosure of fees the adviser is to receive. The regulation contains some key safeguards and conditions, including:
o Requiring that a plan fiduciary (independent of the adviser or its affiliates) select the computer model or fee leveling investment advice arrangement.
o Imposing recordkeeping requirements for advisers relying on the exemption for computer model or fee leveling advice arrangements.
o Requiring that computer models must be certified in advance as unbiased and meeting the exemption's requirements by an independent expert.
o Establishing qualifications and a selection process for the expert who must perform the above certification.
o Clarifying that the fee-leveling requirements do not permit advisers (including its employees) to receive compensation from affiliates on the basis of their recommendations.
o Establishing an annual audit of investment advice arrangements, including the requirement that the auditor be independent from the adviser.
o Requiring disclosures by advisers to plan participants.

The proposed regulation may be found here, and is scheduled to be published in the Federal Register on March 2, 2010.

In De Rosa v. National Envelope Corporation, No. 08-2562 (2nd Circuit 2010), the plaintiff -who worked as a customer service representative-developed a medical condition in his right leg, and was subsequently terminated by his employer. The plaintiff sued the employer for wrongful termination, under the Americans with Disabilities Act (the "ADA"). The district court granted summary judgment for the employer, and the plaintiff appealed. At issue were certain statements that the plaintiff had made in applications for disability benefits, which could be seen as contradictory to an ADA claim.

In an application for Social Security disability benefits, the plaintiff had said "I became unable to work because of my disabling condition on October 13, 2004" and "I am still disabled." In a subsequent portion of this application, the plaintiff answered the question, "[h]ow do your illnesses, injuries or conditions limit your ability to work?" He replied "[c]an't write, type, sit, stand, walk & lift, reach, grab, bend." On a different form, issued by New York State, in a part dealing with social activities, the plaintiff indicated that he was "no longer able to speak on phone or work with computer [due] to pain."

The question faced by the Court was whether these statements, which indicated that the plaintiff was disabled, prevent the plaintiff from establishing one essential element of his ADA claim, namely, whether the plaintiff could perform the essential functions of the job with reasonable accommodation (here, such prevention from establishing this element would occur under the theory of "judicial estoppel"). In dealing with this question, the Court said that the mere fact that a plaintiff files for Social Security disability benefits-thereby representing that he is disabled-does not create a presumption that the plaintiff is not able to perform the essential functions of his job, and thus, is not able to prove an ADA claim. However, the statement made in the filing may require an explanation as to why the plaintiff can nevertheless perform his job. In this case, the Court concluded that the particular statements made were not necessarily inconsistent with the plaintiff still being able to do his job, for example, the Court felt that the statement the he was "no longer able to speak on phone or work with computer [due] to pain." related to his social interactions, not his capability to perform the essential functions of his job. The Court ruled that the statements on the applications did not bar the plaintiff's ADA claim, at least at the summary judgment stage (under the theory of "judicial estoppel" or otherwise). It overturned the district court's summary judgment and remanded the case for further proceedings.

As a follow up to yesterday's blog, on February 22, 2010 (also my birthday), the Employee Benefits Security Administration (the "EBSA") issued a Press Release, announcing new outreach and compliance assistance efforts for 403(b) plans which are subject to ERISA.

According to the Press Release, the EBSA will be sending a letter to administrators of the approximately 16,000 403(b) plans subject to ERISA, to remind them that their 2009 Form 5500 annual reporting requirements have changed and to direct them to various EBSA resources for help in understanding and complying with the new requirements. The Press Relase reminds us that 403(b) plan administrators now must file basic financial and other compliance information annually with the government on a Form 5500 or Form 5500-SF. Large plans (generally those with 100 or more participants) must include a report of an independent qualified public accountant with their Form 5500. All Form 5500s beginning with the 2009 plan year must be filed electronically using the EBSA's new EFAST2 system.

The ESBA's outreach letter points out that the EBSA has also issued specific legal guidance and has several publications that are designed to explain the new annual reporting and electronic filing rules, such as Field Assistance Bulletin (FAB) 2010-01(see yesterday's blog) and a brochure entitled Getting Ready for Changes in Filing Your Plan's Annual Return/Report Form 5500. These materials are available on a newly created EBSA web site at www.dol.gov/ebsa/403b.html.

The Employee Benefits Security Administration has issued Field Assistance Bulletin ("FAB") 2010-01, which provides guidance on the annual reporting and ERISA Coverage requirements for 403(b) plans.

By way of background, in July of 2009, the EBSA issued FAB 2009-02, which addressed the application of certain Form 5500 and Form 5500-SF annual reporting and auditing requirements for 403(b) plans. Specifically, FAB 2009-02, provided transitional relief from those requirements for annuity contracts and custodial accounts entered into or established prior to 2009. The FAB stated that, for purposes of the 403(b) plan's annual reporting and related audit requirements, an annuity contract or custodial account does not need to be treated as part of the plan, or as plan assets, if it meets the following conditions: (1) the contract or account was issued to a current or former employee before 2009; (2) the employer ceased to have any obligation to make contributions (including employee salary reduction contributions), and in fact ceased making contributions, to the contract or account before 2009; (3) all of the rights and benefits under the contract or account are legally enforceable against the issuer or custodian by the individual owner of the contract or account without any involvement of the employer; and (4) the individual owner of the contract or account is fully vested (the "Transitional Relief").

The EBSA issued FAB 2010-01 to answer some of the questions it received on FAB 2009-02, and on the "safe harbor rule" at 29 CFR 2510.3-2(f), which excludes qualifying 403(b) plans from ERISA (the "safe harbor"). Here are some of the more interesting points made in the FAB:

--An annuity contract or custodial account may qualify for the Transitional Relief even if it is known to the plan administrator, and even if the employer provides information to the issuer or custodian about the employee who ownes the contract or account, e.g., his or her employment status;

--The Transitional Relief is not available if the employer forwards, through salary reduction, an employee's loan repayments for deposit in the annuity contract or custodial account, but the relief would be available if the employee made the repayments directly to the issuer or custodian;

--The Transitional Relief does not apply to any annuity contract or custodial account of a new issuer or custodian receive in an exchange after 2009 for an existing contract or account.

--A final contribution made in 2009 to an annuity contract or custodial account for the year 2008 would not cause the contact or account to be ineligible for the Transitional Rule.

--The Transitional Relief applies for purposes of ascertaining the number of a 403(b) plan's participants for reporting purposes, including the determination of whether or not the 403(b) plan is a large plan, and is therefore required to have its financial statements audited. An employee whose only assets in the 403(b) plan are contracts or accounts that meet the Transitional Rule, and who is not otherwise eligible to make salary reduction contributions under the 403(b) plan, need not be counted as a participant for purposes of this determination .

--It is the responsibility of the plan administrator to determine whether any annuity contract or custodial account qualifies for the Transitional Relief.

--The Transitional Relief does not apply to any annuity contract or custodial account exchanged , in accordance with Treasury regulations and IRS requirements, for another contract or account with a new issuer or custodian after 2009.

--The safe harbor under DOL regulation 29 CFR 2510.3-2(f) can be available, even if the 403(b) plan has-optional features- such as participant loans- so long as the 403(b) plan's provider (i.e., contract issuer or custodian), as opposed to the employer or a third party administrator, makes the discretionary determinations about those features.

--The safe harbor would not be available if the employer may change 403(b) providers and unilaterally move employee funds from one provider to contracts or accounts of another provider.

This is an interesting case, because it helps protect the Social Security benefits of a plan participant who, through no fault of his or her own, receives an overpayment of benefits from an employer-sponsored employee benefits plan.

In Hall v. Liberty Life Assurance Company, No.s 08-4738/4739 (6th Cir. 2010), the plaintiff, . Sonya Hall, had received long-term disability benefits (the "LTD Benefits) for nearly five years through the National City Corporation Welfare Benefits Plan (the "Plan"). Liberty Life Assurance Company of Boston ("Liberty Life"), the third-party claims administrator, terminated the LTD Benefits when it determined that Hall was no longer totally disabled. The Plan then sought reimbursement for overpayment of the LTD Benefits, caused by retroactive Social Security benefits being awarded to Hall. Hall responded by filing suit against the Plan.

Concluding that the termination of her LTD Benefits was not arbitrary and capricious, the district court denied Hall's claim for reinstatement of the benefits. The district court further found that the Plan was entitled to partial reimbursement, and imposed an equitable lien on Hall's Social Security benefits to allow the Plan to recover the overpayments. Hall then appealed those decisions.

In dealing with the case, the Sixth Circuit affirmed both the district court's denial of the reinstatement of the LTD Benefits, and the district court's ruling that the Plan was entitled to reimbursement for the overpayments. It then turned its attention to the imposition of the equitable lien. The Court noted that a plan fiduciary is permitted to bring a claim for equitable relief to enforce the terms of the plan, under Section 502(a)(3) of ERISA. For reimbursement of plan overpayments to be considered equitable relief, the reimbursement must involve the imposition of a constructive trust or equitable lien on particular funds or property in the insured's possession. However, under 42 U.S.C. § 407(a) (generally prohibiting alienation or attachment of future Social Security payments), courts are not permitted to place a lien directly on Social Security benefits themselves. The equitable lien in this case must therefore be limited to a specifically identifiable fund (the overpayments themselves) within Hall's general assets. The Plan cannot have a claim to Hall's Social Security benefits prior to the point at which they are in her possession. Thus, the Court concluded that the lien in question, imposed directly on Hall's Social Security benefits, is not permitted.

In Battoni v. IBEW Local Union No 102 Employee Pension Plan, Nos. 08-3743, 09-2030 and 08-3924 (3rd Cir. 2010), the Court considered the scope of ERISA's anti-cutback rule (found at 29 U.S.C. section 1054(g)(1), with a parallel rule in Section 411(d)(6) of the Internal Revenue Code) (the "Anti-Cutback Rule"). At issue was an amendment to a welfare plan (the "Disputed Amendment"), which conditioned receipt of health care benefits from the welfare plan on the non-receipt of a lump sum payment from a pension plan. The plaintiffs challenged the Disputed Amendment as a cutback of their accrued benefits under the pension plan, in violation of the Anti-Cutback Rule.

According to the Court, the Anti-Cutback rule states: "The accrued benefit of a participant under a [pension] plan may not be decreased by an amendment of the plan". To violate the Anti-Cutback rule, a pension plan must be amended, and the amendment must decrease an accrued benefit.

The lump sum payment lost due to the Disputed Amendment is an accrued benefit. The Disputed Amendment amended a welfare benefit plan, which is not subject to the Anti-Cutback Rule. However, the Disputed Amendment constructively amended the pension plan. This obtains because the Disputed Amendment added a condition to the receipt of an accrued benefit under the pension plan. Under this condition, if a participant elects to receive the lump sum payment under the pension plan, he or she loses health care benefits under the welfare plan. Further, said the Court, the Disputed Amendment decreased an accrued benefit under the pension plan, since it imposed a condition on the receipt of the lump sum payment, rendering that form of payment less valuable. Based on the foregoing, the Court concluded that the Disputed Amendment violated the Anti-Cutback Rule.

Comment: This case cautions an employer to be careful with an amendment to one employee benefit plan which could have an effect-proscribed by ERISA or the Internal Revenue Code-on another employee benefit plan.

The Employee Benefits Security Administration (the "EBSA") has announced the publication of a model notice which can be used to meet the notice requirements of the Children's Health Insurance Program Reauthorization Act of 2009 ("CHIPRA").

An employer could be maintaining a group health plan in a State which provides medical assistance, either under a State Medicaid plan under the Social Security Act (the "SSA"), or under a child health insurance program (a "CHIP") under the SSA. This assistance takes the form of money to pay for coverage of employees and their dependents under a group health plan. Under ERISA, as amended by CHIPRA, an employer, which maintains a group health plan in such a State-like New York, New Jersey and Pennsylvania- is required to provide to its employees, each year, a notice which describes the opportunity available in the employee's State of residence to receive this medical assistance. This notice is referred to as the "Employer CHIP Notice". ERISA requires the EBSA to provide employers with a model Employer CHIP Notice by February 4, 2010. In turn, the employer must provide the initial annual Employer Chip Notices to employees by the later of (1) the first day of the first plan year of its group health plan that begins after the date on which the model notice is published (February 4, 2010) or (2) May 1, 2010.

Thus, for a calendar year group health plan, the first Employer CHIP Notices must be provided by January 1, 2011. For convenience, an employer may generally combine the Employer CHIP Notice with other plan materials, such as enrollment packets, open season materials, or the plan SPD, provided that (1)these materials are furnished by the date on which the Employer Chip Notice is due, (2) these materials are furnished to all employees entitled to receive the Employer CHIP Notice, and (3) the Employer CHIP Notice appears separately and in a manner which ensures that an employee could reasonably be expected to appreciate its significance.

The model Employer CHIP Notice was designed as a "template" that an employer may send to the residents of any State. States may wish to include additional information on their Web sites and in their own compliance assistance materials. The approach of the model Employer CHIP Notice is to provide a very brief description of the available medical assistance and rely on State contact information for State-specific program descriptions. An employer which nevertheless wants to provide more comprehensive State-specific information to its employees may modify the model Employer CHIP Notice to add this information, as long as the minimum relevant State contact information is retained.

The model Employer CHIP Notice is available here.

In Charles Schwab & Co. v. Debickero, No. 07-15261 (9th Cir. 2010), the Court dealt with an interpleader action brought by Charles Schwab & Company ("Schwab"). In the interpleader, Schwab asked the Court to resolve a dispute over the ownership of an individual retirement account (the "IRA"), established by Wayne Wilson at Schwab. The disputing parties were Katherine Chandler, Wilson's surviving spouse, on the one hand, and Wilson's four adult children from a previous marriage, the named beneficiaries under the IRA, on the other hand. The funds in the IRA originated in the 401(k) plan of Wilson's employer, and were transferred by Wilson to an IRA at Smith Barney, and then transferred to the IRA at Schwab. The transfer out of the 401(k) plan was made after Wilson terminated his participation in the plan and before he married Chandler.

The Court noted that Chandler's primary claim to the IRA was that the automatic surviving spouse rules in section 205 of ERISA and section 401(a)(11) of the Code carry over to the IRA, since the IRA's funds originated in a 401(k) plan, to which those sections of ERISA and the Code apply. Those rules generally provide a lifetime annuity to a participant's surviving spouse. However, the Court found that these rules ceased to apply when- long before his marriage to Chandler- Wilson terminated his participation in the 401(k) plan and transferred the proceeds to an independent IRA, an arrangement to which those rules do not apply. As such, the Court rejected Chandler's claim to ownership over the IRA, so that the four named beneficiaries became the owners.

Comment: It has long been thought that the ERISA/Code automatic surviving spouse rules do not carry over (or otherwise apply) to an IRA, with respect to amounts transferred to the IRA from a qualified retirement plan (such as a 401(k) plan), or with respect to any other amounts. Thus, the Court's decision is not a surprise. I like the use of the interpleader to resolve disputes over funds and ownership. Allowing the Court to decide the dispute lets the bank or other financial institution avoid paying amounts out of the IRA (or any plan or arrangement at issue) to the wrong individual, and later having to pay the right individual those same amounts out of its own pocket.

In its Final Rule pertaining to the safe harbor deadline for depositing contributions in small employee benefit plans (see my blog of January 14), the Department of Labor (the "DOL") clarified that:

--the deposit of plan loan repayments received or deducted from pay by the employer are subject to the deposit deadlines applicable to employee plan contributions in the ERISA regulations; and

--the new safe harbor deadline for depositing employee plan contributions in a plan with under 100 participants- deposit required within 7 business days of receipt - is available for loan repayments.

The preamble to the Final Rule says:The DOL had proposed to amend paragraph (a)(1) of § 2510.3-102 of the ERISA regulations to extend the application of the regulation to amounts paid by a participant or beneficiary or withheld by an employer from a participant's wages for purposes of repaying a participant's loan (regardless of plan size). See Advisory
Opinion 2002-02A (May 17, 2002). The proposal also served to extend the availability of the 7-business day safe harbor to loan repayments to plans with fewer than 100 participants.The Final Rule adopts these proposals

In a Press Release dated January 8, 2010, the Department of Labor (the "DOL") said that its EFAST2 online filing system is operational to receive and process Form 5500 filings.

According to the Press Release, the DOL's Employee Benefits Security Administration (the "EBSA") converted to a total electronic system of online filing for the Forms 5500 and new the Form 5500-SF on December 31, 2009. Now the all-electronic EFAST2 system allows the public to submit and access filings online at www.efast.dol.gov. The revised EFAST Web site has been updated to provide filers with a variety of tools and guidance, including the 2009 and 2010 Form 5500 and new Form 5500-SF schedules and instructions, Frequently Asked Questions, user guides, and a tutorial. Filers and preparers can register for an account, complete the required forms and schedules online in multiple sessions, print a copy for their records, and submit it at no cost.

Filers may also use EFAST2-approved software to complete and submit their filings. EFAST2-approved software is expected to be easier to use and provide more value-added features than the Government web application. A list of EFAST2-approved software is available at on the Web site above. Filers must submit the 2009 and 2010 annual return/report forms and schedules electronically through EFAST2. Prior year delinquent or amended Form 5500 filings also now must be filed electronically except that timely 2008 plan year filings may still be filed through the original EFAST on paper until October 15, 2010 or electronically through June 30, 2010.

Important changes for the 2009 and 2010 Form 5500s include:
• Mandatory electronic filing
• Introduction of the new, two-page Form 5500-SF for eligible small plan filers
• Expanded disclosure on Schedule C of indirect service provider compensation
• Expanded reporting by Code section 403(b) plans
• Removal of IRS Schedules E and SSA. Information on participants with deferred vested benefits who separated from the service covered by the plan now must be filed directly with the Internal Revenue Service

In Majeski v. Metropolitan Life Insurance Co., No. 09-1930 (7th Cir. 2009), the plaintiff, Kirsten Majeski, had been employed by Metropolitan Life Insurance Company ("MetLife"), and had participated in MetLife's Short Term Disability Plan (the "Plan"). The case centers on the decision of MetLife, as plan administrator, to reject Majeski's claim for short-term disability benefits, after determining that Majeski had failed to submit enough evidence to support her claim. The district court had likewise rejected Majeski's claim for the benefits and had granted summary judgment against her.

The Court applied a deferential review to Metlife's decision to deny Majeski's claim for benefits, since the Plan granted discretionary authority to Metlife, as plan administrator, to determine a participant's entitlement to benefits. However, the Court found it troubling that one doctor's report--the sole basis for MetLife's decision to deny the claim--concludes, erroneously, that Majeski did not submit objective evidence of functional limitations that were the source of her disability. This doctor did not acknowledge or analyze the significant evidence that Majeski did offer on that matter. The Court felt that these omissions made Metlife's claim denial arbitrary and capricious, and said that a plan administrator's claims procedure is not reasonable if the plan administrator's determination of a benefit claim ignores, without explanation, substantial evidence that the plaintiff submitted on the central issue-here, Majeski's functional limitations.

Based on the foregoing, the Court overturned Metlife's benefit claim denial and the district court's summary judgment against the plaintiff. The Court remanded the case back to the district court, which would turn the case over to Metlife to again review the plaintiff's claim for short-term disability benefits, but this time taking into account the evidence she offered.

In In Re: Schering Plough Corporation ERISA Litigation, No. 08-4814 (3rd Cir. 2009), the plaintiff, Michele Wendell, is a former employee of Schering-Plough Corporation ("Schering-Plough") who participated in the Schering-Plough Corporation Employees' Savings Plan (the "Plan"). She brought a class action against Schering-Plough and certain of its officers and directors under section 502(a)(2) of ERISA, claiming that breaches of fiduciary duty had occurred in the offering and management of the Plan, for example, causing a decline in the value of the Plan's company stock fund. One issue faced by the Court was whether a release, consisting of a general release and covenant not to sue, the plaintiff had signed in connection with her separation from Schering-Plough violated ERISA and was therefore void, so that the plaintiff could sue and maintain the class action.

As to the release, the first question is whether section 410(a) of ERISA renders the release, including the covenant not to sue, void as against public policy. Section 410(a) of ERISA provides that "any provision in an agreement or instrument which purports to relieve a fiduciary from responsibility or liability for any responsibility, obligation, or duty under this part shall be void as against public policy." The Court concluded that section 410 applies only to instruments that purport to alter a fiduciary's statutory duties and responsibilities, whereas an individual release or covenant not to sue merely settles an individual dispute without altering a fiduciary's statutory duties and responsibilities. Therefore, the plaintiff's release is valid.

The second question is whether the valid release bars the plaintiff from being able to bring a suit under section 502(a)(2) of ERISA. The Court said that claims brought under section 502(a)(2) are, by their nature, plan claims. The vast majority of the courts have concluded that an individual release has no effect on an individual's ability to bring a claim on behalf of a plan under section 502(a)(2). As such, the Court concluded that the plaintiff's valid release does not prevent the plaintiff from bringing this suit.

However, the existence of the release, among other matters, caused the Court to question as to whether the plaintiff could maintain a class action. The Court remanded the case back to the district court to decide that issue.

In Advisory Opinion 2009-04A, the Department of Labor (the "DOL") was faced with the questions of whether the assets of "target-date" or "lifecycle" mutual funds ("Funds") constitute "plan assets" of employee benefit plans which invest in the Funds, and whether the Funds' investment advisers would be considered fiduciaries of the investing employee benefit plans under ERISA. The Funds' assets typically consist of shares of affiliated mutual funds. In answering these questions, the DOL assumed that the Funds are investment companies registered under the Investment Company Act of 1940 "(Registered Investment Companies").

The DOL noted that, under Section 3(21)(B) of ERISA, the investment of an employee benefit plan in a Registered Investment Company does not, by itself, cause such company or its investment adviser to be a fiduciary (or a party in interest) of the investing plan for purposes of Title I of ERISA. Also, under Section 401(b)(1) of ERISA, when an employee benefit plan invests in a share of a Registered Investment Company, the assets of the investing plan will include that share, but not any of the assets of that company.

The DOL said that, in its view, nothing in ERISA Section 3(21)(B) or Section 401(b)(1) suggests that a Registered Investment Company's investment in the shares of affiliated mutual funds would, by itself, affect the application of those Sections. Thus, the DOL concluded that the fact that a Fund's assets consist of shares of affiliated mutual funds does not, by itself, make the assets of the Fund "plan assets" of an employee benefit plan which invests in the Fund, or make the Fund's investment advisers fiduciaries of the investing employee benefit plan under ERISA.