Articles Posted in ERISA

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.

In Wengert v. Rajendran, No. 16-4571 (8th Cir. 2018), Susan Wengert sued the members of the plan-administrative committee (the “plan administrator”) of the Majors Plastics, Inc. Employee Stock Ownership Plan (the “Plan”); the personal representative of the Estate of Timothy McConnell; and the trustee of the Timothy McConnell Trust.  The district court granted summary judgment against Wengert.  Having jurisdiction under ERISA, the Eighth Circuit Court of Appeals (the “Court”) affirmed the district court’s judgement.

In this case, Wengert’s husband was Timothy J. McConnell.  He filed for divorce. He was a participant in the Plan.  Under the Plan, the amount in a participant’s account is an “Accrued Benefit.”  McConnell’s Accrued Benefit was $2,721,739.37.  On Friday, September 12, 2014, McConnell requested a lump-sum distribution of the Accrued Benefit to his trust.  The plan administrator wired the funds that same day.  McConnell died on Sunday.  The trust did not receive the funds until Monday.

McConnell was still married to Wengert when he died.  The Plan defines a “Beneficiary” as a “Participant’s surviving spouse.” The Plan says: “A pay-out of the vested Accrued Benefit . . . shall satisfy all obligations of the Plan . . . to [the] Participant or his Beneficiary.” Wengert submitted a claim for benefits.  The plan administrator denied it, saying that McConnell had no Accrued Benefit under the Plan, since the funds were transferred out before McConnell died; there is no benefit for Wengert to claim so she cannot be a Beneficiary.  Wengert, on the other hand, disagreed with the plan administrator, believing she should receive the $2,721,739.37 as McConnell’s Beneficiary.  She suggests that the Friday wire transfer is irrelevant because the trust did not receive the funds until after McConnell’s death.  Wengert brought suit, claiming the foregoing amount as a benefit under Section 502(a)(1)(B) of ERISA.

In Barchock v. CVS Health Corp., No. 17-1515 (1st Cir. 2018), the plaintiffs allege violations of the fiduciary duty of prudence under ERISA by the fiduciaries of an employer-sponsored 401(k) retirement plan.  Specifically, the plaintiffs contend that a particular investment fund offered through the plan was invested too heavily in cash or cash-equivalents for the years at issue, and thus that the plan was imprudently managed and monitored. The district court dismissed the complaint for failure to state a claim under ERISA.

Upon reviewing the case, the First Circuit Court of Appeals (the “Court”) found that plaintiffs/plan participants failed to sufficiently allege violations of the fiduciary duty of prudence, under sections 3(21)(A) and 404(a)(1)(B) of ERISA, by the fund managers of their 401(k) plan, because merely contending that a stable value fund invested a relatively high proportion of its assets in cash or cash-equivalents, and that such an allocation was too conservative and departed radically from the logic and practices of such funds, did not suffice to state a claim of imprudence under ERISA.  It was unreasonable to infer from solely the allegations that the fund manager “departed radically” from the cash-equivalent allocations by like funds that the manager was a “severe outlier” when it came to asset allocation decisions.  Further, because the alleged harm was not cognizable under ERISA, there was also no basis for a claim against the employer or plan committee.  Accordingly, the Court affirmed the district court’s dismissal of the complaint.

In Cooper v. Honeywell International, Inc., No. 17-1042 (6th Cir. 2018), the Sixth Circuit Court of Appeals (the “Court”) was faced with another case dealing with whether retiree benefits in a collective bargaining agreement (the “CBA”) should extend beyond the CBA’s expiration. Rebecca Cooper and some 50 other retirees at Honeywell International’s Boyne City, Michigan plant say that Honeywell must provide them healthcare benefits until they reach age 65.  Honeywell responds that its obligation to pay those benefits ended when its CBA with the Boyne City employees expired in March 2016.

In this case, while waiting for the district court to decide the case, the retirees sought a preliminary injunction barring Honeywell from terminating their healthcare.  The district court granted the injunction, concluding that the retirees had shown both a likelihood of success on the merits and that they would suffer irreparable harm without such relief.  Upon reviewing the case, the Court said that because we find that the retiree healthcare benefit provision in the CBA did not clearly provide an alternative end date to the CBA’s general durational clause, or otherwise show an intent to vest the retiree healthcare benefits beyond the CBA’s expiration date, the Court concludes that Cooper has not shown a likelihood of success on the merits, and thus the Court reverses the decision of the district court to grant a preliminary injunction.

In so ruling, the Court pointed to two recent Supreme Court cases, CNH Industrial N.V., v. Reese, 583 U.S. ___ (2018) and Kelsey-Hayes Co. v. Int’l Union, 583 U.S. ___ (2018), in which the Supreme Court overturned Sixth Circuit decisions and established the rule that the general durational clause of a CBA should dictate when benefits expire, unless an alternative end date is provided.

 

In Glazing Health & Welfare Fund v. Lamek, No. 16-16155 (9th Cir.), a panel of the Ninth Circuit Court of Appeals (the “Panel”) affirmed the district court’s dismissal of an ERISA action brought by employee benefit trust funds (the “Trust Funds”), seeking unpaid contributions owed under the contracts governing the benefit plans that the Trust Funds managed for Accuracy Glass & Mirror Company.

The Trust Funds argued that, pursuant to those contracts, the unpaid contributions were trust assets over which the owners and officers of Accuracy exercised control and that the Trust Funds therefore could sue these individuals as fiduciaries to collect the contributions.  The Panel held that the Trust Funds’ claim was foreclosed by Bos v. Bd. of Trustees (Bos I), 795 F.3d 1006 (9th Cir. 2015), which held that employers are not fiduciaries under ERISA as to unpaid contributions to ERISA benefit plans.

Dissenting, Judge Gleason wrote that she disagreed with the majority’s interpretation of Bos I and would find that outside of the bankruptcy context unpaid employer contributions to employee benefit plans may constitute plan assets when the ERISA plan document expressly defines them as such.

 

 

In Indiana Electrical Workers Pension Benefit Fund v. ManWeb Servs., No. 16-2840 (7th Cir. 2018), for a second time in this case, the Seventh Circuit Court of Appeals (the “Court”) considered whether defendant-appellee ManWeb Services, Inc. is a successor in interest to a defunct employer that owes withdrawal liability to a multiemployer pension plan.  The original employer was Tiernan & Hoover, but everyone refers to it as “Freije” after its key founder, William Freije, and his son Richard.  ManWeb entered into an asset purchase agreement with Freije in 2009.  Freije was a small contractor specializing in refrigeration and cold-storage engineering for commercial and industrial projects.  ManWeb was a larger company offering a wider range of contracting services, with the notable exception, before it acquired Freije’s assets, of refrigeration projects such as cold-storage warehouses.  Freije’s unionized electricians were covered by a multiemployer pension plan.

ERISA establishes withdrawal liability for employers leaving a multiemployer pension plan. See 29 U.S.C. § 1381.  In this case, Freije withdrew from the Indiana Electrical Workers Benefit Fund (“the Fund”).  The Fund assessed withdrawal liability of $661,978 against Freije.  When Freije failed to pay, the Fund brought this action against both Freije and ManWeb as a successor in interest to Freije.  Successor liability can apply under the MPPAA when the purchaser had notice of the liability and there is continuity of business operations. Upholsterers’ Int’l Union Pension Fund v. Artistic Furniture of Pontiac, 920 F.2d 1323, 1329 (7th Cir. 1990). At this point, the only issue in the case is the claim against ManWeb based on successor liability.

The district court granted summary judgment for Man-Web in 2013, finding it lacked notice of Freije’s withdrawal liability.  In the first appeal, the Court remanded, finding that “Man-Web had sufficient pre-acquisition notice of [Freije’s] contingent withdrawal liability to satisfy the federal successor liability notice requirement.” Tsareff v. ManWeb Services, Inc., 794 F.3d 841, 848 (7th Cir. 2015) (“ManWeb I“).  On remand, the district court again granted summary judgment for ManWeb, concluding that the Fund had not shown sufficient continuity of business operations to support successor liability.  The Fund has appealed again.  This time, the Court found itself in respectful disagreement with it’s colleague on the district court.  In the totality of relevant circumstances, ManWeb’s purchase of and use of Freije’s intangible assets—its name, goodwill, trademarks, supplier and customer data, trade secrets, telephone numbers and websites—and its retention of Freije’s principals to promote ManWeb to existing and potential customers as carrying on the Freije business under ManWeb’s larger umbrella, weigh more heavily in favor of successor liability than the district court recognized. Therefore, the Court vacated the district court’s decision and remanded the case for further consideration of this equitable determination.

Introduction/ Holding.  In Chamber of Commerce of the United States v. United States Dep’t of Labor, No. 17-10238 (Fifth Cir. 2018), the Fifth Circuit Court of Appeals (the “Court”) struck down the “Fiduciary Rule” promulgated by the U.S. Department of Labor (the “DOL”) in April 2016.

In this case, three business groups had filed suit challenging the Fiduciary Rule.  As used in this case, the term “Fiduciary Rule” refers to a package of seven different rules that broadly reinterpret the term “investment advice fiduciary” and promulgate and redefine prohibited transaction exemptions to add provisions concerning fiduciaries that appear in ERISA at 29 U.S.C. § 1001 et seq, and the Internal Revenue Code, at 26 U.S.C. § 4975.  The stated purpose of the Fiduciary Rule is to regulate, in an entirely new way, hundreds of thousands of financial service providers and insurance companies in the trillion dollar markets for ERISA plans and individual retirement accounts (“IRAs”).

The business groups’ challenge proceeds on multiple grounds, including: (a) the Fiduciary Rule’s inconsistency with the governing statutes, (b) the DOL’s overreaching to regulate services and providers beyond its authority, (c) the DOL’s imposition of legally unauthorized contract terms to enforce the new regulations, (d) First Amendment violations, and (e) the Fiduciary Rule’s arbitrary and capricious treatment of variable and fixed indexed annuities.  The district court rejected all of these challenges.   Finding merit in several of these objections, the Court vacated the Fiduciary Rule.

In Santomenno v. Transamerica Life Ins. Co., No. 16-56418 (9th Cir. Feb. 23, 2018), a panel of the Ninth Circuit Court of Appeals (the “Panel”): (1) reversed the district court’s order denying defendants’ motion to dismiss an ERISA case alleging breach of fiduciary duties in connection with a retirement plan, and (2) vacated the district court’s subsequent class certification orders.

In this case, the district court had held that a plan service provider breached its fiduciary duties to plan beneficiaries first when negotiating with an employer about providing services to the plan and later when withdrawing predetermined fees from plan funds.  An employer that forms an ERISA plan is a statutory fiduciary, and a plan service provider becomes a functional fiduciary under certain circumstances.

Joining other circuits, the Panel held that a plan administrator is not an ERISA fiduciary when negotiating its compensation with a prospective customer.  As to alleged breaches after the defendant became a plan service provider, the Panel held that the defendant was not a fiduciary with respect to its receipt of revenue sharing payments from investment managers because the payments were fully disclosed before the provider agreements were signed and did not come from plan assets. Agreeing with other circuits, the Panel held that defendant also was not a fiduciary with respect to its withdrawal of preset fees from plan funds.  The Panel concluded that when a service provider’s definitively calculable and nondiscretionary compensation is clearly set forth in a contract with the fiduciary-employer, collection of fees out of plan funds in strict adherence to that contractual term is not a breach of the provider’s fiduciary duty.

In Cooper v. Honeywell International, Inc., No., 17-1042 (6th Cir. 2018), the issue was whether retiree healthcare benefits in a collective bargaining agreement (“CBA”) should extend beyond the CBA’s expiration.  Rebecca Cooper and some 50 other retirees at Honeywell International’s Boyne City, Michigan plant allege that Honeywell must provide them healthcare benefits until they reach age 65.  Honeywell responds that its obligation to provide those benefits ended when its CBA with the Boyne City employees expired in March 2016.

While waiting for the district court to rule on the matter, the retirees sought a preliminary injunction barring Honeywell from terminating their healthcare.  The district court granted the injunction, concluding that the retirees had shown both a likelihood of success on the merits and that they would suffer irreparable harm without such relief.

Upon reviewing the case, the Sixth Circuit Court of Appeals (the “Court”) said that, because it finds that the retiree healthcare benefit provision in the CBA did not clearly provide an alternative end date to the CBA’s general durational clause, it concludes that Cooper has not shown a likelihood of success on the merits.  Thus, the Court reversed the decision of the district court, thereby not allowing the retirees to obtain the preliminary injunction.

 

In Singh v. RadioShack Corp., 16-11587 (5th Cir. 2018), the Plaintiffs, Manoj P. Singh, Jeffrey Snyder, and William A. Gerhart, represent a putative class of those who participated in RadioShack Corporation’s 401(k) Plan (the “Plan”) and who held RadioShack stock in their 401(k) accounts after November 30, 2011.  They appeal the dismissal by the district court of their claims that Defendants—members of the RadioShack board of directors and plan administrative committee—breached their fiduciary duties under ERISA by allowing plan participants to invest in RadioShack stock despite the company’s descent into bankruptcy.

The Fifth Circuit Court of Appeals (the “Court”) affirmed the district court’s dismissal.  The Court concluded that the Plaintiff’s complaint did not plausibly state any fiduciary claims with respect to the Plan.