Articles Posted in ERISA

In Heavenly Hana LLC v. Hotel Union & Hotel Industry of Hawaii Pension Plan, No. 16-15481 (9th Cir. 2018), a panel for the Ninth Circuit Court of Appeals (the “Panel”) reversed the district court’s judgment, after a bench trial, in favor of the plaintiffs in an action under the Multiemployer Pension Plan Amendment Act.

The Panel held that the plaintiffs were required to assume the unpaid withdrawal liability of their predecessor to a multiemployer pension plan.  The Panel held that a constructive notice standard applied, and the plaintiffs were on constructive notice of potential withdrawal liability because a reasonable purchaser would have discovered their predecessor’s withdrawal liability.

In Dowdy v. Metropolitan Insurance Company, No. 16-15824 (9th Cir. 2018), a panel of the Ninth Circuit Court of Appeals (the “Panel”) reversed the district court’s judgment in favor of the defendant in an ERISA action challenging the denial of accidental dismemberment benefits under an employee welfare benefit plan subject to ERISA.

In this case, the plaintiff suffered a serious injury to his left leg as the result of an automobile accident, and his leg was eventually amputated below the knee. The defendant denied coverage because the plaintiff’s injury was complicated by his diabetes. The Panel held that the district court did not abuse its discretion in excluding evidence outside the administrative record, and any error on this issue was harmless because the external evidence did not support the plaintiff’s claim.

Under the ERISA plan, the plaintiff was entitled to coverage if his car accident was the “direct and sole cause” of the loss, and if amputation “was a direct result of the accidental injury, independent of other causes.” The Panel held that, even under the more demanding “substantial contribution” standard used when the applicable plan language is conspicuous, the plaintiff was entitled to recovery because the record did not support a finding that the preexisting condition of diabetes substantially contributed to his loss. The panel remanded the case to the district court for further proceedings.

In Gordon v. Cigna Corporation, No. 17-1188 (4th Cir. 2018), Steven Gordon worked for Oil Price Information Services, Inc. and paid premiums on life insurance policies, under a plan sponsored by the employer, that totaled $300,000 in coverage.  But when Steven Gordon died in January 2014, his insurer, The Life Insurance Company of North America (“LINA”), paid Steven’s wife and beneficiary, Kimberly Gordon, only $150,000. The reason, LINA claimed, was because Steven Gordon had only been approved for $150,000 in coverage—not for the full $300,000 in coverage he had been paying for. When Kimberly Gordon sued for the difference between the two amounts, the district court granted summary judgment in favor of the insurance company.

The district court found that the errors leading to Steven Gordon’s reduced coverage resulted from mistakes by his employer, which administered the life insurance plan, not the insurance company. Thus, the insurance company did not breach any fiduciary duty it may have had under ERISA, nor did it knowingly participate in a breach of trust by another fiduciary. The district court also found that discovery would not lead to any information that would change its conclusion, so the court granted summary judgment before either party conducted discovery. Kimberly Gordon, on behalf of Steven Gordon’s estate, now appeals the district court’s decision. Upon reviewing the case, the Fourth Circuit Court of Appeals affirmed the district court’s ruling.

(Following up on Blog post on May 22)

In Am. Orthopedic & Sports Med. v. Independence Blue Cross Blue Shield, 2018 U.S. App. LEXIS 12637 (3rd Circuit 2018), the Third Circuit Court of Appeals (the “Court”) held that an anti-assignment clause in an ERISA-governed health insurance plan was enforceable, since it was negotiated between the insurer and plan administrator.  As such, the district court properly held that a healthcare provider-to whom an assignment of a claim for benefits against the plan was purportedly made by the plan beneficiary/patient- lacked standing to bring suit against the plan for payment.  The Court felt that its ruling on the anti-assignment clause’s enforceability is in line with decisions from the First, Second, Fifth, Ninth, Tenth, Eleventh (cases cited therein).

In so ruling, the Court said that insurers did not waive their right to enforce the anti-assignment clause by accepting and processing a claim form, issuing a check to the plan beneficiary, and failing to raise the clause as an affirmative defense during the internal administrative appeals process.

In Eden Surgical Center v. Cognizant Technology Solutions Corp., No. 16-56422 (9th Cir.2018) (Unpublished), the plaintiff, Eden Surgical Center (“Eden”), was appealing the district court’s grant of summary judgment for the defendants on Eden’s claims under ERISA.

The Ninth Circuit Court of Appeals (the “Court”) analyzed the case as follows.  Eden-seeking payment for surgical services provided- concedes that its sole basis for standing to claim such payment is as an assignee.  It also concedes that the benefit plan, the potential payor here, contained a valid anti-assignment provision, which, if enforceable, would bar Eden’s suit. Eden argues, however, that the doctrines of equitable estoppel and waiver render the provision unenforceable.

As to the equitable estoppel argument, the Court said that reasonable reliance on a material misrepresentation is one of the requirements necessary to establish an equitable estoppel claim.   Eden contends that Aetna, the claims administrator, made two misrepresentations: First, a week or so before the surgery, Aetna incorrectly advised Eden regarding the applicable reimbursement rate; and second, roughly four months after the surgery, Aetna mistakenly told Eden that the benefit plan did not contain an anti-assignment provision.

In Field Assistance Bulletin No. 2018-01 (the “FAB”), the U.S. Department of Labor (the “DOL”) provides additional guidance on the exercise of shareholder rights, written statements of investment policy and economically targeted investments.  Here is what the FAB says:


The DOL’s longstanding position is that, under ERISA, the fiduciary act of managing plan assets that involve shares of corporate stock includes making decisions about voting proxies and exercising shareholder rights.  To assist plan fiduciaries in understanding their obligations under ERISA, the DOL issued Interpretive Bulletin (IB) 2016-01.  The DOL has a similarly longstanding position that ERISA fiduciaries may not sacrifice investment returns or assume greater investment risks as a means of promoting collateral social policy goals.  Interpretive Bulletin (IB) 2015-01 contains the DOL’s interpretation of ERISA sections 403 and 404 as applied to employee benefit plan investments in economically targeted investments (that is, investments selected for the economic benefits they create apart from their investment return to the employee benefit plan).

In Field Assistance Bulletin No. 2018-02 (the “FAB”), the U.S. Department of Labor (the “DOL”) announces a temporary enforcement policy on prohibited transaction rules that apply to investment advice fiduciaries, to help them handle the recent decision from the Fifth Circuit Court of Appeals vacating the DOL’s New Fiduciary Rule and related exemptive relief.  Here is what the FAB says:


This document announces a temporary enforcement policy related to the DOL’s rule defining who is a “fiduciary” under ERISA and the Internal Revenue Code (the “Code”), and the associated prohibited transaction exemptions, including the Best Interest Contract Exemption (the “BIC Exemption”), the Class Exemption for Principal Transactions In Certain Assets Between Investment Advice Fiduciaries and Employee Benefit Plans and IRAs (the “Principal Transactions Exemption”), and certain amended prohibited transaction exemptions (collectively, the “PTEs”).

In Girardot v. The Chemours Company, No. 17-1894 (3rd Circ. 2018), the plaintiffs, who were certain employees (the “Employees), brought claims under ERISA against their former employer, the Chemours Company (“Chemours”) related to an employee severance plan. Chemours moved to dismiss the claim pursuant to Fed. R. Civ. P. 12(b)(6), on the basis that the severance plan was not subject to ERISA. The United States District Court for the District of Delaware granted the motion, and the Employees now appeal the District Court’s decision. Upon reviewing the case, the Third Circuit Court of Appeals (the “Court”) affirmed the District Court’s decision.

In this case, in September 2015, Chemours announced a voluntary reduction-in-force program called the Chemours Voluntary Separation Program (“VSP”). Under the terms of the VSP, Chemours had sole authority and discretion to determine which employees would be eligible to participate in the VSP, and that it would approve all of the eligible employees no later than November 30, 2015. Participants were entitled to payment of a lump sum severance benefit of one week of base pay for each full year of service, with both a minimum benefit of two (2) weeks of base pay and a cap of twenty-six (26) weeks of base pay, i.e., a maximum benefit of six (6) months of base pay. They were also entitled to a lump sum payment equal to the costs of three (3) months of COBRA medical coverage and to the payment of a ‘prorated bonus for their year of separation to be made in accordance with Chemours’ procedures and based on Company performance.

Unhappy with this arrangement, the Employees brought ERISA claims related to the VSP against Chemours. However, as stated above, the District Court dismissed their claim, and the Employees appealed.

In Bakery & Confectionary Union & Industry International Pension Fund v. Just Born II, Incorporated, No. 17-1369 (4th Cir. 2018), Just Born II, Inc. (“Just Born”), a candy manufacturer, appeals the district court’s judgment requiring it to pay delinquent contributions into the Bakery and Confectionary Union and Industry International Pension Fund (the “Pension Fund”), as well as interest, statutory damages, and attorneys’ fees.  It contends, first, that the district court misapplied the federal statute governing multiemployer pension funds in critical status and, second, that the court erred in holding that it had failed to plead adequately its affirmative defenses.  Upon reviewing the case, the Fourth Circuit Court of Appeals (the “Court”) affirmed the district court’s rulings.

As to the ruling which requires Just Born to pay the delinquent contributions and more, the case developed as follows:

Just Born and the Bakery, Confectionary and Tobacco Workers International Union, Local Union 6 (the “Union”) were parties to a collective bargaining agreement (the “CBA”) governing employment at Just Born’s Philadelphia, Pennsylvania, confectionary plant from March 1, 2012, to February 28, 2015.  The CBA required Just Born to contribute to the Pension Fund, a multiemployer pension plan.  According to the CBA, these contributions were to be paid from the first day the employee begins working in a job classification covered by the CBA.  While the CBA was still in effect, the Pension Fund’s actuaries certified it to be in critical status, a designation which, under ERISA, requires the plan sponsor to adopt and implement a rehabilitation plan designed to restore the plan’s financial stability and bring it out of critical status.

In Teufel v. Northern Trust Co., Nos. 17-1676 & 17-1677 (7th Cir. 2018), the following happened.  In 2012, Northern Trust changed its pension plan.  Until then it had a defined-benefit plan under which retirement income depended on years worked, times an average of each employee’s five highest-earning consecutive years, times a constant.  Example: 30 years worked, times an average high-five salary of $50,000, times 0.018, produces a pension of $27,000.  The parties call this the Traditional formula.  As amended, however, the plan multiplies the years worked and the high average compensation not by a constant but by a formula that depends on the number of years worked after 2012.  The parties call this arrangement the new PEP formula, and they agree that it reduces the pension-accrual rate.

Recognizing that shifting everyone to the new PEP formula would defeat the expectations of workers who had relied on the Traditional formula, Northern Trust provided people hired before 2002 a transitional benefit, treating them as if they were still under the Traditional formula except that it would deem their salaries as increasing at 1.5% per year, without regard to the actual rate of change in their compensation.  James Teufel contends in this suit that the 2012 amendment, even with the transitional benefit, violates the anti-cutback rule in ERISA.  He also contends that the change harms older workers relative to younger ones, violating the ADEA.  The district court dismissed the suit on the pleadings, and Teufel appeals.

Upon analyzing this case, the Seventh Circuit Court of Appeals (the “Court”) determined that the amendment did not violate the ERISA anti-cutback rule.  This obtains because the benefit payments under the amended pension plan are higher than if the plan had terminated, with the benefits transferred to a new plan, and then continued to accrue under the new PEP formula.  Under the amended pension plan, Teufel gets the vested benefit as of March 2012 plus an increase in the (imputed) average compensation of 1.5% a year (for pre-2012 work) for as long as he continues working.  Changing a plan to base benefit accruals on an assumed salary increase, rather than actual salary increase, does not violate the anti-cutback rule.