ERISA Lawyer Blog

In Gardner v. Heartland Industrial Partners, L.P., No. 11-2327 (6th Cir. 2013), the Court faced the question of whether the plaintiff's state-law claim of tortious interference with a contract, which happens to be a pension plan subject to ERISA, is "completely preempted" under ERISA § 1132(a)(1)(B).

In this case, one defendant, Heartland Industrial Partners, L.P. ("Heartland"), is a Delaware investment firm that formerly held an ownership interest in Metaldyne Corporation, an automotive supplier in Michigan. Defendant Timothy Leuliette is a co-founder of Heartland and was the CEO and Chairman of the Board of Metaldyne. Defendant Daniel Tredwell is likewise a Heartland co-founder and was a Metaldyne Board member.The plaintiffs are former Metaldyne executives.

In August 2006, Heartland agreed to sell its ownership interest in Metaldyne to another investment firm, Ripplewood Holdings. Less than two months later, Metaldyne submitted to the SEC a "Schedule 14A and 14C Information" report that detailed the terms of the acquisition. The report failed to mention, however, that Metaldyne would owe the plaintiffs approximately $13 million as a result of the sale to Ripplewood. That obligation arose under a change-of-control provision in Metaldyne's "Supplemental Executive Retirement Plan" ("SERP"), in which the plaintiffs were participants. The SERP is a plan subject to ERISA. Ripplewood threatened to back out of the deal when it found out about the $13 million SERP obligation.

In response, Leuliette and Tredwell persuaded Metaldyne's Board (of which they were Chairman and a Member, respectively) simply to declare the SERP invalid. The Board did so on December 18, 2006, though it did not notify the plaintiffs of that fact at the time. The Ripplewood deal closed less than a month later. Leuliette personally collected more than $10 million as a result of the deal. A month after the deal closed, Metaldyne notified the plaintiffs that it had invalidated the SERP. This suit ensued, with the plaintiffs pleading a single state-law claim against Heartland, Leuliette, and Tredwell, for tortious interference with contractual relations, due to their role in invalidating the SERP. The defendants removed the case to federal court, contending that the plaintiffs' claim was "completely preempted" under ERISA. The defendants also filed a motion to dismiss the case on that ground. The district court granted the defendant's motion to dismiss, and the plaintiffs appeal.

The specific issue before the Court is jurisdictional: whether the plaintiffs' complaint stated a federal question, thereby allowing the defendants to remove the case from state to federal court. The Court noted that, when a federal statute-such as ERISA- wholly displaces the state-law cause of action through complete pre-emption, the state claim can be removed. Section 1132(a)(1)(B) of ERISA has this effect, and a claim within the scope of that section will be completely preempted. A claim is within this scope if two requirements are met: (1) the plaintiff complains about the denial of benefits to which he is entitled only because of the terms of an ERISA-regulated employee benefit plan and (2) the plaintiff does not allege the violation of any legal duty (state or federal) independent of ERISA or the plan terms. Here, the defendants' duty not to interfere with the plaintiffs'SERP agreement with Metaldyne arises under Michigan tort law, not the terms of the SERP itself. Also, the defendants' duty is not derived from, or conditioned upon, the terms of the SERP. Thus, prong (2) is not met, so that the plaintiffs' claim is not completely preempted by ERISA. As such, the Court overturned the district court's dismissal of the plaintiffs' claim.

In Hannington v. Sun Life and Health Insurance Company, No. 12-1085 (1st Cir. 2013), the plaintiff ("Hannington") had filed suit under ERISA against the defendant, Sun Life and Health Insurance Company ("Sun"). The suit challenged Sun's reduction of Hannington's disability payments under an ERISA-covered plan (the "Plan") due to his receipt of disability compensation under the Veterans' Benefits Act. The district court entered judgment for Hannington, and Sun appealed.

Hannington was receiving disability benefits from the Plan. The Plan provides a disabled participant with sixty percent of his pre-disability salary. However, the Plan reduces this benefit by amounts received as "Other Income." Under the Plan, one type of "Other Income" is "any amount of disability or retirement benefits under: a) the United States Social Security Act . . .; b) the Railroad Retirement Act; or c) any other similar act or law provided in any jurisdiction." The Plan grants Sun-the claims fiduciary-the sole and exclusive discretion and power to construe any and all issues relating to eligibility for benefits. Sun had treated the disability compensation under the Veteran's Benefits Act as "Other Income" and reduced Hannington disability payments from the Plan accordingly. The question for the First Circuit Court of Appeals (the "Court"): was Sun correct in reducing the disability benefits being paid by the Plan?

In analyzing the case, the Court noted that, since the Plan gave Sun-the claims fiduciary- discretionary power to make benefit determinations, Sun's decision to reduce Hannington's benefit is entitled to a deferential review. However, to the extent that Sun is required, in the course of determining the meaning of the plan language, to interpret the law or other material outside the plan, the Court's review of the law or other material is de novo. Here, Sun's interpretation of the "Other Income" definition of the Plan depends wholly upon its interpretation of external, non-plan material: the Veterans' Benefits Act, the Social Security Act and the Railroad Retirement Act. The Court determined-under a de novo review- that the Veterans' Benefits Act is not similar to the Social Security Act or the Railroad Retirement Act, so that disability benefits paid under the Veterans' Benefits Act is not "Other Income" under the Plan. As such, the Court concluded that Sun's decision to offset Hannington" Plan disability benefits by the disability compensation paid under the Veterans' Benefits Act was incorrect, and it affirmed the district court's decision.

In Pension Benefit Guaranty Corporation v. Morgan Stanley Investment Management, Inc., Docket No. 10-4497-cv (2nd Cir. 2013), the Court considered the degree of factual detail needed in a complaint in order to establish a claim that a pension plan administrator purchased and continued to hold certain mortgage-backed securities imprudently and in violation of its fiduciary duties under ERISA.

In analyzing the case, the Court said that a claim of imprudence may be established if the complaint alleges facts that, if proved, would show that an adequate investigation would have revealed to a reasonable fiduciary that the investment at issue was improvident. In this case, however, the Court concluded that the plaintiff's complaint failed to allege facts supporting the plausible inference that the defendant knew, or should have known, that the mortgage-backed securities in question were imprudent investments.

The Court said that, in particular, the complaint relies on the decline in the market price of mortgage-backed securities generally, without specifying the securities at issue or presenting any facts to suggest that a reasonable investor would have viewed those particular securities as imprudent investments. A decline in market price of a type of security-even a precipitous one-does not, by itself, give rise to a reasonable inference that it was imprudent to purchase or hold that type of security. The complaint referred to "warning signs" that the price would decline, such as information about financial losses suffered by the issuers of the securities. However, the Court felt that none of these warning signs gave rise to a plausible inference that the defendant knew, or should have known, that the securities in question were imprudent investments, or that the defendant had breached its fiduciary duty by not selling those investments.

Based on the foregoing, the Court found that the plaintiffs failed to establish a claim of imprudent investment in violation of ERISA's prudence requirement.

In Central States, Southeast and Southwest Areas Pension Fund v. Nagy, No. 11-3055 (7th Cir. 2013), Nagy Ready Mix ("Ready Mix") employed Teamsters labor and participated in the Central States, Southeast and Southwest Areas Pension Fund, a multi-employer pension plan (the "Plan") . In 2007, Ready Mix ceased employing covered workers and thus incurred $3.6 million in "withdrawal liability" to the Plan. Ready Mix was unable to pay the full $3.6 million amount. The question in this case is whether Charles F. Nagy ("Nagy"), its sole owner, is liable for the shortfall under ERISA. The answer turns on whether Nagy is engaged in an unincorporated "trade or business". If yes, he is engaged in a trade or business under common control with Ready Mix and is therefore personally liable for the withdrawal liability.

In analyzing the case, the Seventh Circuit Court of Appeals (the "Court") noted two possibilities. First, Nagy owns the property on which Ready Mix conducts its operations and leases the property back to Ready Mix. This rental activity could qualify as a trade or business. Second, Nagy provided management services to a country-club venture. He may have done so as an independent contractor, which likewise would qualify as a trade or business.

The Court said that Nagy's leasing activity is categorically a trade or business for these purposes. As to the management services, the Court said that, if these services were rendered as an independent contractor, Nagy would be engaged in a trade or business; if these services were rendered as an employee, then the services are not a trade or business. Distinguishing between an employee and an independent contractor depends on an analysis of the following factors: (1) the extent of the employer's control and supervision over the worker, including directions on scheduling and performance of work; (2) the kind of occupation and the nature of the skills required, including whether skills are obtained in the workplace; (3) responsibility for the costs of operation, such as equipment, supplies, fees, licenses, workplace, and maintenance of operations; (4) the method and form of payment and benefits; and (5) the length of job commitment and/orexpectations. Based on these factors, Nagy is an independent contractor. This was particularly so, since the country-club reported Nagy's compensation on Form 1099. Nagy did not receive salary through a payroll system, as one would expect for an employee. Rather, the country-club paid Nagy an hourly rate and did not withhold taxes or provide fringe benefits. On his personal tax returns, Nagy reported his Wells Venture income on Schedule C, which covers "Profit or Loss from Business (Sole Proprietorship)."

As such, since Nagy was engaged in at least one-here two-unincorporated trades or businesses, the Court concluded that he is personally liable for Ready Mix's withdrawal liability.

The U.S. Department of Labor, the Department of Health and Human Services and the Treasury Department (together, the "Departments") have released FAQs about the Affordable Care Act Implementation Part XIV. These FAQs discuss the implementation of the Affordable Care Act. Here are some of the things that the FAQs said on the Summary of Benefits and Coverage (the "SBC").

The Templates For The SBCs And Uniform Glossary After The First Year Of Applicability. An updated SBC template (and sample completed SBC) are now available at cciio.cms.gov and www.dol.gov/ebsa/healthreform. These documents are authorized for use, with respect to group health plans, for SBCs provided with respect to coverage beginning on or after January 1, 2014, and before January 1, 2015 (referred to as "the second year of applicability"). The only changes to the SBC template and sample completed SBC from the previous templates are: (1) the addition of statements of whether the plan provides minimum essential coverage or "MEC" (as defined under section 5000A(f) of the Internal Revenue Code 1986) and (2) whether the plan meets the minimum value requirements or "MV Requirements" (such requirements being that the plan's share of the total allowed costs of benefits provided under the plan is not less than 60 percent of such costs). On page 4 of the SBC template (and illustrated on page 6 of the sample completed SBC), a plan should indicate in the designated entry on the SBC template that the plan "does" or "does not" provide MEC and whether the plan "does" or "does not" meet applicable MV requirements.

The Uniform Glossary has not changed-the current template may still be used.

Relief If It Is Burdensome To Make The Above Changes To An SBC. To the extent a plan is unable to modify the SBC template for disclosures required to be provided with respect to the second year of applicability, the Departments will not take any enforcement action against a plan for using the previous template, provided that the SBC is furnished with a cover letter or similar disclosure stating whether the plan does or does not provide MEC and whether the plan's share of the total allowed costs of benefits provided under the plan does or does not meet the MV requirement under the Affordable Care Act. The language for these statements is as follows:

Does this Coverage Provide Minimum Essential Coverage?

The Affordable Care Act requires most people to have health care coverage that qualifies as "minimum essential coverage." This plan or policy [does/does not] provide minimum essential coverage.

Does this Coverage Meet the Minimum Value Standard?

In order for certain types of health coverage (for example, job-based coverage) to qualify as minimum essential coverage, the plan must pay, on average, at least 60 percent of allowed charges for covered services. This is called the "minimum value standard." This health coverage [does/does not] meet the minimum value standard for the benefits it provides.

Annual Limits On Essential Health Benefits. No changes were made to the templates for the SBC (and sample completed SBC) to reflect the prohibition on annual limits on essential health benefits that becomes effective under the Affordable Care Act in 2014. Rather, plans should continue to complete the SBC template consistent with the Instructions for Completing the SBC for the Important Questions chart that appears on page 1 of the SBC:
• In the Answers column, the plan should respond "No," where the template asks, "Is there an overall annual limit on what the plan pays?", as plans are generally prohibited from imposing annual limits on the dollar value of essential health benefits for plan years beginning on or after January 1, 2014.
• In the Why This Matters column, the plan must show the following language: "The chart starting on page 2 describes any limits on what the plan will pay for specific covered services, such as office visits."

Additionally, as applicable, plans should continue to include information regarding annual or lifetime dollar limits on specific covered benefits as required in the chart starting on page 2 of the SBC (in the Limitations & Exceptions column, as described in the Instructions for Completing the SBC). To the extent a plan wishes to modify the SBC template for disclosures required to be provided for the second year of applicability to remove this information, the Departments will not take any enforcement action against a plan for removing the entire row in the Important Questions chart on page 1 of the SBC (with the question: "Is there an overall annual limit on what the plan pays?").

Other Information:

--There are no changes in the required coverage examples in the SBC.

--The use of certain safe harbors and other enforcement relief pertaining to the SBC and Uniform Glossary have been extended.
--The "anti-duplication" rule for SBCs (i.e., the SBCs need not be provided by both the plan and its insurer) is extended to student health insurance coverage.

ERISA-Seventh Circuit Affirms Dismissal Of Stock Drop Case

In White v. Marshall & Ilsley Corporation, No.11-2660 (7th Cir. 2013), the Seventh Circuit Court of Appeals (the "Court") faced a "stock drop case", that is, a case in which the plaintiff alleged that the fiduciaries of an employee retirement savings plan acted imprudently-thereby violating ERISA's fiduciary requirements- by allowing participating employees to choose to buy and hold an employer's stock while it declined significantly in price.

The Court said of such cases: In the absence of allegations of misrepresentations or other wrongful conduct not alleged here, plaintiffs in such cases under ERISA must try to hit a very small and perhaps non-existent target. The theory -- that the employer and plan fiduciaries violated their duty of prudence under ERISA by continuing to offer employer stock as an investment option -- would require the employer and plan fiduciaries, in this case and many similar cases, to violate the retirement plan's governing documents, which employers and plan fiduciaries are also required to follow under ERISA. The theory also seems to be based often on the untenable premise that employers and plan fiduciaries have a fiduciary duty either to outsmart the stock market, which is groundless, or to use insider information for the benefit of employees, which would violate federal securities laws.

In this particular case, defendant Marshall & Ilsley Corporation ("M&I") offered its employees participation in an individual account retirement savings plan (the "Plan"). The Plan allowed employees to choose how to distribute their savings among twenty two investment funds with different risk and reward profiles. With one exception, the investment funds offered by the Plan were selected by the Plan's fiduciaries. One of the investment options in the Plan was the M&I Stock Fund which consisted of M&I stock. The Plan required the fiduciaries to offer this fund to the participants for investment. The portion of the Plan holding the M&I Stock Fund constitutes an employee stock ownership plan or "ESOP". During the housing market collapse and subsequent market crash in 2008 and 2009, M&I's stock price dropped by approximately 54 percent, as did the value of employees' investments in the M&I Stock Fund. This suit followed. Applying a presumption that the fiduciaries acted prudently, the district court dismissed the case. The plaintiffs appealed.

In reviewing the case, the Court agreed that the presumption of prudence-the so-called "Moench presumption"- applies. Plaintiffs in a case involving an ESOP may overcome this presumption by showing that no reasonable fiduciaries would have thought they were obligated to continue offering company stock as a Plan investment. For example, the plaintiffs could show that the company was facing dire circumstances or was nearing collapse, or that, given all relevant circumstances, continuing to offer company stock as a Plan investment imposed excessive risk on the plaintiffs. The Court ruled, however, that in this case the plaintiffs did not offer sufficient evidence to overcome the Moench presumption. The 54 percent drop in M&I's stock is not significantly worse than drops in stock prices in cases where the courts have found, as a matter of law, no violation of the duty of prudence. Also, the Plan permitted employees to choose from among twenty two options and allowed them to change their investments at any time, mitigating any excessive risk.

The Court said, further, that it agreed with the Second, Third, and Eleventh Circuits that a claim against ESOP fiduciaries alleging a violation of the duty of prudence may be dismissed at the pleading stage-the current stage of this case-if the plaintiffs do not make allegations sufficient to overcome the Moench presumption . Accordingly, the Court affirmed the district court's dismissal of the case.
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In Leimkuehler v. American United Life Insurance Co., Nos. 12-1081, 12-1213 & 12-2536 (7th Cir. 2013), the plaintiffs brought suit against American United Life Insurance Company ("AUL"). AUL is an Indiana-based insurance company, which offers investment, record-keeping, and other administrative services to the Leimkuehler, Inc.Profit Sharing Plan (the "Plan"), in which the plaintiffs participate. The plaintiffs alleged that AUL had benefited, at the expense of the Plan, by participating in "revenue sharing", a practice by which mutual funds in which the Plan had invested were sharing a portion of the fees they collect from investors with AUL for the recordkeeping services AUL was performing. The plaintiffs claimed that this benefit violates ERISA. However, the district court ruled that AUL was not a fiduciary of the Plan, with respect to AUL's revenue-sharing participation, so that no ERISA violation had occurred. The plaintiffs appeal.

The Seventh Circuit Court of Appeals (the "Court") agreed with the district court that AUL was not an ERISA fiduciary of the Plan when it made decisions about, or engaged in, revenue sharing. Therefore, it affirmed the district court's ruling. In analyzing the case, the Court said that AUL is a fiduciary with respect to the Plan to the extent it: (i) exercises any discretionary authority or discretionary control respecting management of the Plan or exercises any authority or control respecting management or disposition of its assets, (ii) renders investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of the Plan, or has any authority or responsibility to do so, or (iii) has any discretionary authority or discretionary responsibility in the administration of the Plan (see section 3(21)(A) of ERSA).

In this case, only clause (i) is potentially applicable. The Court concluded that AUL is not a fiduciary under clause (i), at least with respect to the revenue sharing. AUL had selected the funds to be included in the Plan's investment menu. However, such selection, without more, does not give rise to a fiduciary responsibility, both because limiting the funds in the investment menu does not automatically create discretionary control sufficient for fiduciary status, and-here-another person had final say on fund selection. Other than limiting the funds, all AUL did was provide recordkeeping services for Plan accounts. Those services did not involve any exercise of authority or control over the revenue sharing.

In US Airways, Inc. v. McCutchen, No. 11-1285 (U.S. Supreme Court 2013), the Supreme Court (the "Court") faced the following situation. The health benefits plan established by plaintiff US Airways had paid $66,866 in medical expenses for injuries suffered by defendant McCutchen, a US Airways employee, in a car accident caused by a third party. The plan entitled US Airways to reimbursement if McCutchen later recovered money from the third party. McCutchen's attorneys secured $110,000 in payments, and McCutchen received $66,000 after deducting the lawyers' 40% contingency fee. US Airways demanded reimbursement of the full $66,866 it had paid. When McCutchen did not comply, US Airways filed suit under §502(a)(3) of ERISA. That section authorizes health-plan administrators to bring a civil action "to obtain . . . appropriate equitable relief . . . to enforce . . . the terms of the plan."

The Court had ruled in an earlier case, Sereboff v. Mid Atlantic Medical Services, Inc., that a health-plan administrator- like US Airways- may enforce a reimbursement provision in a plan by filing suit under §502(a)(3). The question for the Court in this case: may the defendant raise equitable defenses? Here, the defendant has attempted to raise two such defenses, derived from the principles of unjust enrichment: (1) absent over recovery on McCutchen's part, US Airways' right to reimbursement did not kick in and (2) US Airways had to contribute its fair share to the costs McCutchen incurred to get his recovery, so any reimbursement had to be reduced by 40%, to cover the contingency fee.

As to defense (1), the Court said that in a §502(a)(3) action, based on an equitable lien by agreement created-as here- by a provision authorizing reimbursement in a plan subject to ERISA, the plan's terms govern. Neither general unjust enrichment principles nor specific doctrines reflecting those principles--such as the double-recovery (insurer reimbursement limited to amount of medical expenses incurred and covered by the insurance) or common-fund rules (reasonable attorney's fees may be paid out of funds collected)--can override the applicable contract. Thus defense (1) fails. As to defense (2), while equitable rules cannot trump a plan's reimbursement provision, they may aid in properly construing it. US Airways' plan is silent on the allocation of attorney's fees between the plan and participant, and the equitable common fund doctrine provides the appropriate default rule to fill that gap. The plan's reimbursement provision precludes looking to the equitable double-recovery rule, because it provides an allocation formula that expressly contradicts that rule. By contrast, the plan says nothing specific about how to pay for the costs of recovery. Given that contractual gap, the common-fund doctrine provides the best indication of the parties' intent. The Court remanded the case, for the lower court to determine exactly how to apply the plan's reimbursement provision in this case.

In Tompkins v. Central Laborer's Pension Fund, No. 12-1995 (7th Cir. 2013), the Central Laborers' Pension Fund (the "Fund") had terminated Donald J. Tompkins's disability benefits because he became employed full-time and, therefore, no longer had a "total and permanent disability." Tompkins had brought this suit under ERISA, challenging the Fund's interpretation of its definition of "total and permanent disability." The question for the Seventh Circuit Court of Appeals (the "Court"): Should the Fund's interpretation be upheld?

In this case, Tompkins had filed an application for a disability pension from the Fund based on chronic asthmatic bronchitis, which he attributed to working with cement dust for twenty-two years. His application was approved by the Fund. The plan document for the Fund defined "total and permanent disability" as follows:

A Total and Permanent Disability shall mean that the Employee is totally and permanently. . . unable to engage in further employment or gainful pursuit of non-Laborer . . . employment for which the employment is considered full-time and a primary source of income. For such non-Laborer . . . employment, . . . the Participant may earn up to $14,000 per calendar year in non-Laborer . . . employment and be considered totally and permanently disabled . . . .

Tompkins received monthly disability benefits from the Fund through May 2007. In June, the Fund sent him a letter suspending his disability pension. The letter stated that Tompkins's full-time employment at a company named Wilman Construction in 2005 and 2006 led the Fund to believe that he no longer met the Fund's definition of "total and permanent disability". According to the letter, the Fund found that Tompkins began working forty hours per week beginning in July 2005 and earned $10,550 that year and $22,100 in 2006. The letter informed Tompkins that he had been overpaid $48,654.89 in benefits from July 2005 through May 2007 and that the Fund would seek to recover that amount through its recovery process.

In analyzing the case, the Court noted that a court reviews the denial of ERISA benefits de novo, unless the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan. The Court ruled that the plan document for the Fund gave its trustees such discretionary authority, so that the Fund's interpretation of the term "total and permanent disability" must be reviewed under the arbitrary or capricious standard.

Next, the Court said that, according to the Fund, the definition of "totally and permanently disabled" -admittedly ambiguous-should be interpreted to prohibit a totally and permanently disabled participant from engaging in full-time non-laborer employment. The $14,000 threshold applies only in the case of part-time employment. Under this interpretation, since the Fund found that Tompkins had been working in non-laborer employment full time (the employment with Wilman Construction apparently being of this nature), the $14,000 threshold does not apply to him. This employment means that he has ceased to be totally and permanently disabled, justifying the suspension of his disability pension. The Court ruled that this interpretation of the Fund's terms was not arbitrary or capricious. It rests on a reasoned understanding of "total and permanent disability", in the face of the language's ambiguity: once a participant is engaged in full-time employment, regardless of how much he makes, he is no longer totally and permanently disabled. As such, the Court upheld the Fund's interpretation and its suspension of the benefits.

In Thurber v. Aetna Life Ins. Co., Docket Nos. 12-370-cv (Lead), 12-521-cv (XAP) (2nd Cir. 2013), the plaintiff, Sharon Thurber ("Thurber") was appealing a decision of the district court granting summary judgment to the defendant, Aetna Life Insurance Company ("Aetna"), on Thurber's claim that Aetna had improperly denied her request for long-term disability ("LTD") benefits. Also, Aetna was appealing the district court's denial of its counterclaim against Thurber for equitable restitution of overpaid short-term disability ("STD") benefits.

In this case, Thurber had been covered at work by a disability benefits plan (the "Plan"), administered by Aetna. Under the Plan, Thurber was entitled to LTD benefits if a disabling condition rendered her unable to perform the material and substantial duties of her occupation. After being in two car accidents in which her legs were injured, Thurber left work and filed a claim for LTD benefits under the Plan on the grounds that she could no longer sit or walk as required by her job. Aetna denied the claim for LTD benefits, on the basis that she could still perform her job. Thurber brought this suit, seeking the LTD benefits under section 502(a)(1)(B) of ERISA. Although it had denied the claim for LTD benefits, Aetna had paid Thurber $7,213.92 in STD benefits under the Plan, when Thurber had also received this amount in no fault insurance benefits. Aetna asked the district court to order Thurber to repay the STD benefits, as equitable restitution, under section 502(a)(3) of ERISA.

In analyzing the case, the Second Circuit Court of Appeals (the "Court") noted that Aetna's decision to deny Thurber's claim for LTD benefits must be reviewed under an arbitrary and capricious standard, if the Plan gives Aetna discretionary authority to determine a participant's eligibility for benefits. Under this standard, Aetna's decision will be overturned only if it is without reason, unsupported by substantial evidence or erroneous as a matter of law. The Court found that both the Plan and its summary plan description (the "SPD") included language giving Aetna the discretion needed to entitle Aetna to the arbitrary and capricious review. For example, the Plan provides Aetna with "discretionary authority to: determine whether and to what extent employees and beneficiaries are entitled to benefits." The Court said that Aetna is entitled to the arbitrary and capricious standard of review, even if Thurber had not received a copy of the Plan or the SPD. The Court then said that, under this review standard, based on the case record, Aetna's denial of the claim for LTD benefits must be upheld. Accordingly, the Court affirmed the district court's summary judgment to Aetna on the denial of Thurber's claim for LTD benefits.

As to Aetna's counterclaim, the Court noted that section 502(a)(3) of ERISA allows a fiduciary-such as Aetna-to bring suit for "appropriate equitable relief". The Court said that, in this case, the nature of Aetna's claim is equitable, since it seeks specific funds (i.e., overpayments resulting from Thurber's simultaneous receipt of no-fault insurance benefits and the STD benefits) in a specific amount (the total overpayment, $7,213.92). The Plan authorizes this recovery, since the SPD provides that Aetna may reduce benefits if a beneficiary receives other income, and may require the beneficiary to return any benefits subsequently rendered overpayments. This language establishes an equitable lien by agreement. The funds constituting the STD benefit payments were entrusted to Thurber, even though these funds have been dissipated. As such, the Court concluded that Aetna presented a claim for "appropriate equitable relief" under section 502(a)(3) of ERISA, and the Court remanded the case back to the district court, with instructions to enter judgment in favor of Aetna on its counterclaim.

In Judge v. Metropolitan Life Insurance Company, No. 12-1092 (6th Cir. 2013), the plaintiff, Thomas Judge ("Judge"), was appealing a decision by the district court on the administrative record in favor of the defendant, Metropolitan Life Insurance Company ("MetLife"), who had denied Judge long-term disability ("LTD") benefits.

In this case, Judge had undergone surgery to repair an aortic valve and a dilated ascending aorta, and had applied for LTD benefits under a group insurance policy (the "Plan") issued and administered by MetLife. MetLife denied the LTD benefits, however, when it determined that Judge was not totally and permanently disabled under the terms of the Plan. After exhausting MetLife's internal administrative procedures, Judge brought suit under ERISA to recover the LTD benefits.

Judge argued on appeal that MetLife's denial of LTD benefits was arbitrary and capricious. Specifically, he contended that: (1) MetLife applied the wrong definition of "total disability" to Judge's claim, (2) MetLife erred in failing to obtain vocational evidence before concluding that Judge was not totally and permanently disabled, (3) MetLife erred in conducting a file review by a nurse in lieu of having Judge undergo an independent medical examination, and (4) there was a conflict of interest because MetLife both evaluates claims and pays benefits under the Plan. However, the Sixth Circuit Court of Appeals (the "Court") disagreed with these contentions, and ruled that MetLife's denial of the LTD benefits was not arbitrary and capricious. As such, the Court affirmed the district court's judgment in MetLife's favor.

The Employee Benefits Security Administration (the "EBSA") has provided, on its website, tips for plan fiduciaries for investing in target date retirement funds ("TDFs"). The tips are intended to assist plan fiduciaries in complying with ERISA when selecting and monitoring TDFs and other investment options in 401(k) and similar participant-directed individual account plans. The tips are summarized as follows:

Target Date Fund Basics. TDFs may be attractive investment options for employees who do not want to actively manage their retirement savings. TDFs
automatically rebalance to become more conservative as an employee gets closer to retirement. The "target date" refers to a target retirement date, and often is part of the name of the fund.

Investment Strategy For TDFs. TDFs offer a long-term investment strategy based on holding a mix of stocks, bonds and other investments (this mix is called an asset allocation) that automatically changes over time as the participant ages. A TDF's
initial asset allocation, when the target date is a number of years away, usually consists mostly of stocks or equity investments, which often have greater potential for higher returns but also can be more volatile and carry greater investment risk. As the target retirement date approaches (and often continuing after the target date), the fund's asset allocation shifts to include a higher proportion of more conservative investments, like bonds and cash instruments, which generally are less volatile and carry less investment risk than stocks.

The Glide Path. The shift in the asset allocation over time is called the TDF's "glide path." It is important to know whether a target date fund's glide path uses a "to retirement" or a "through retirement" approach. A "to" approach reduces the TDF's equity exposure over time to its most conservative point at the target date. A "through" approach reduces equity exposure through the target date so it does not reach its most conservative point until years later. Within this general framework, however, there are considerable differences among TDFs offered by different providers, even among TDFs with the same target date. For example, TDFs may have different investment strategies, glide paths, and investment-related fees. Because these differences can significantly affect the way a TDF performs, it is important that fiduciaries understand these differences when selecting a TDF as an
investment option for their plan.

What to Remember When Choosing Target Date Funds.

• Establish a process for comparing and selecting TDFs. In general, plan fiduciaries should engage in an objective process to obtain information that will enable them to evaluate the prudence of any investment option made available under the plan. For example, in selecting a TDF you should consider prospectus information, such as information about performance (investment returns) and investment fees and expenses.

• Establish a process for the periodic review of selected TDFs. Plan fiduciaries are required to periodically review the plan's investment options to ensure that they should continue to be offered. At a minimum, the review process should include examining whether there have been any significant changes in the information fiduciaries considered when the option was selected or last reviewed. Similarly, if your plan's objectives in offering a TDF change, you should consider replacing the fund.

• Understand the fund's investments - the allocation in different asset classes (stocks, bonds, cash), individual investments, and how these will change over time. Have you looked at the fund's prospectus or offering materials? Do you understand the principal strategies and risks of the fund, or of any underlying asset classes or investments that may be held by the TDF? Make sure you understand the fund's glide path, including when the fund will reach its most conservative asset allocation and whether that will occur at or after the target date.

• Review the fund's fees and investment expenses. TDF costs can vary significantly, both in the amount and types of fees. Small differences in investment fees and costs can have a serious impact on reducing long term retirement savings.

• Inquire about whether a custom or non-proprietary target date fund would be a better fit for your plan. TDF vendors may offer a pre-packaged product which uses only the vendor's proprietary funds as the TDF component investments. Alternatively, a "custom" TDF may offer advantages to your plan participants by giving you the ability to incorporate the plan's existing core funds in the TDF, and by including component funds that are managed by fund managers other than the TDF provider itself, thus diversifying participants' exposure to one investment
provider.

• Develop effective employee communications. Have you planned for the employees to receive appropriate information about TDFs in general, as a retirement investment option, and about individual TDFs available in the plan? Disclosures required by law also must be considered. The Department of Labor published a final rule that, starting for most plans in August 2012, requires that
participants in 401(k)-type individual account retirement plans receive greater information about the fees and expenses associated with their plans, including specific fee and expense information about TDFs and other investment options available under their plans.

• Take advantage of available sources of information to evaluate the TDF and recommendations you received regarding the TDF selection. While TDFs are relatively new investment options, there are an increasing number of commercially available sources for information and services to assist plan fiduciaries in their
decision-making and review process.

• Document the process. Plan fiduciaries should document the selection and review process, including how they reached decisions about individual investment options.

In Tibble v. Edison International, No. 10-56406 (9th Cir. 2013), participants in a 401(k) plan had brought suit under ERISA, alleging that the plan had been managed imprudently and in a self-interested fashion, primarily by including in its investment options certain "retail-class" mutual funds that engaged in revenue sharing (i.e., a mutual fund paying fees to an administrator out of plan assets). The Ninth Circuit Court of Appeals (the "Court") faced a number of issues on appeal.

The first issue was the statute of limitations that applied to filing the suit. The Court noted that, for claims of fiduciary breach, ERISA § 413 provides that no action may be commenced "after the earlier of": (1) six years after the date of the last action which constituted a part of the breach or violation, or (2) three years after the earliest date on which the plaintiff had actual knowledge of the breach or violation (six years in certain cases of fraud or concealment). The Court ruled that the act of designating an investment for inclusion starts the six-year period under section 413(1) for claims-as those here- asserting imprudence in the design of the plan investment menu. Here, the plaintiffs did not have the knowledge that would invoke the three-year limitations period.

The next issue was whether the plaintiffs' claims had to be dismissed under ERISA § 404(c), a safe harbor that can apply to a pension plan that "provides for individual accounts and permits a participant or beneficiary to exercise control over the assets in his account." The Court said that the 401(k) plan at issue is clearly covered by§ 404(c). That section provides that " [N]o person who is otherwise a fiduciary shall be liable under this part for any loss, or by reason of any breach, which results from such participant's or beneficiary's exercise of control." The defendants say that this language insulates them from plaintiffs' claims, because each challenged investment was a product of a "participant's or beneficiary's exercise of control," by virtue of his selection of it from the
Plan investment menu. Relying on the preamble to the DOL's 1992 regulations governing § 404(c), and since the defendants chose the plan's investment options, the Court concluded that § 404(c) does not preclude a court's consideration of the plaintiffs'claims, that is, the provision does not protect a fiduciary's selection of investment options for a plan's menu.

Going to the merits of the case, the Court ruled:

--against the plaintiffs' claim that revenue sharing between the retail-class mutual funds and the plan's administrative service provider violated the plan's governing
document and was a conflict of interest;

--that an abuse of discretion standard of review applied in this fiduciary duty and conflict-of-interest suit because the plan granted interpretive authority to the administrator, so that the administrator's interpretation of the plan to permit the revenue sharing had to be upheld;

--that the defendants did not violate their duty of prudence under ERISA merely by including in the 401(k) plan's investment menu (1) certain mutual funds, (2) a short term investment fund akin to a money market fund and (3) a unitized employer stock fund; and

--that the defendants were imprudent in deciding to include the retail-class shares of three specific mutual funds in the 401(k) plan's investment menu, because they failed to investigate the possibility of institutional-share class alternatives that had lower expense ratios.

In Dennison v. MONY Life Retirement Income Security Plan, No. 12-2407 (7th Cir. 2013), the plaintiff ("Dennison") was appealing the district court's grant of summary judgment to the defendant.

In this case, Dennison had been employed by Mutual of New York Insurance Company ("MONY"). While so employed he had participated in: (1) MONY's Retirement Income Security Plan for Employees ("RISPE"), a tax-qualified defined benefit pension plan, and (2) the Excess Benefit Plan for MONY Employees (the "Excess Plan"), a nonqualified plan of deferred compensation for highly compensated employees. Both the RISPE and the Excess Plan entitled Dennison to benefits at age 55, and offered Dennison a choice of taking his benefits as a "straight life" annuity--a fixed monthly payment for the rest of his life--or as a lump sum. The lump sum form was represented to be the actuarial equivalent of the annuity, with actuarial equivalence depending on Dennison's life expectancy and an interest discount factor.

Dennison choose the lump sum for his benefits under both plans. He received a check for the RISPE, in the amount of $325,054.28, and a check for the Excess Plan, in the amount of $218,726.38. To calculate the RISPE lump sum, the discount rate was a blended rate, called a "segment rate" under IRC section 417, of roughly 5.24 percent. To calculate the Excess Plan lump sum, a discount rate of 7.5% was used. Dennison claimed that the proper rate-which would have resulted in significantly higher lump sums-was a rate, computed by the Pension Benefit Guaranty Corporation ("PBGC") on the basis of annuity premiums charged by insurance companies, of 3%. At the time Dennison left MONY's employ, the RISPE generally provided that the discount rate would be the PBGC rate, the 3% rate, and the Excess Plan was using 7.5 percent. Dennison later brought this suit over the appropriate discount rate for RISPE and Excess Plan lump sums.

In analyzing the case, the Court noted that in the Pension Protection Act of 2006, Congress authorized employers to amend their plans to retroactively raise the plan's discount rate to the segment rate. Before the Act, such an amendment would have violated ERISA's anti-cutback rule. MONY used this authorization to amend the RISPE-shortly before Dennison reached age 55 and became entitled to benefits- to use the segment rate as the discount rate. The Excess Plan was not changed. The RISPE had a provision which proscribed amendments decreasing accrued benefits. However, the "accrued benefit" here is the participant's benefit in life annuity form. Thus, the Court found that nothing prevented MONY from amending the RISPE to use a higher discount rate to compute lump sums. Further, the Court interpreted the Excess Plan, including its references to the RISPE and taking notice of prior practice, to be using the 7.5% discount rate. As such, the Court affirmed the district court's summary judgment against Dennison.

In Gearlds, Jr. v. Entergy Services, Inc., No. 12-60461 (5th Cir. 2013), the plaintiff ("Gearlds") was appealing from the district court's dismissal of his suit against defendant Entergy Services, Inc. ("Entergy"), in which he alleged claims of equitable estoppel and breach of fiduciary duties under ERISA.

In this case, Gearlds took early retirement from Entergy in 2005, at the age of 55, and received a reduced pension and full medical, dental, and vision benefits from Entergy's employee benefit plans. Gearlds alleged in his complaint that he agreed to retire early because Entergy told him orally and in writing that he was covered by Entergy's Medical Benefits Plus Plan and would continue to receive medical benefits. At some point, Gearlds waived medical benefits available under his wife's retirement plan when she retired from her employment because of the assurances he had received from Entergy.

In 2010, however, Entergy notified Gearlds that it was discontinuing his medical benefits. Apparently, when Entergy determined the benefits to whichGearlds was entitled upon retirement in 2005, it believed that Gearlds was still receiving long term disability benefits from one of Entergy's plans, even though those benefits had actually ended three years earlier, and it therefore included the time from 2002 to 2005 when computing Gearlds's service time for purposes of determining his benefits. This error caused Entergy to determine that Gearlds was eligible for medical coverage, when he was not. Gearlds filed this suit, alleging that Entergy negligently induced him to take early retirement insofar as it promised him health care benefits, and asserting claims under for breach of fiduciary duty under ERISA § 502(a)(3) and equitable estoppel.

In analyzing the case, the Fifth Circuit Court of Appeals (the "Court") noted that ERISA § 502(a)(3) permits a plan beneficiary to bring a civil action to obtain "other appropriate equitable relief" for ERISA violations. In CIGNA Corp. v. Amara, the Supreme Court recently expanded the kind of relief available under § 502(a)(3), when the plaintiff is suing a plan fiduciary and the relief sought makes the plaintiff whole for losses caused by the defendant's breach of a fiduciary duty. The Supreme Court concluded that-in such a case- monetary damages could be allowed under that section, in the form of "surcharge". In this case, Gearlds's complaint under § 502(a)(3) for breach of fiduciary duty -which could lead to monetary damages in the form of surcharge, even though he did not specifically request it- is viable in light of Amara. As such, the Court overturned the district court's dismissal of the case, and remanded the case back to the district court.