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In Testa v. Becker, Nos. 17-1826-cv, 17-1985-cv (2nd Cir. 2018), in 1998, defendant Xerox Corporation Retirement Income Guarantee Plan (the “Xerox Plan”) issued a Summary Plan Description explaining that it would calculate plan participants’ benefits using the so-called “phantom account offset” method.  In 2006, the Second Circuit Court of Appeals (the “Court”) held in Frommert v. Conkright, 433 F.3d 254 (2d Cir. 2006), that defendant Lawrence Becker (“Becker”) could not use the phantom account offset when calculating benefits for a group of over one hundred plan participants who were hired before 1998.

Three years later, plaintiff Robert Testa (“Testa”), who was hired before 1998, learned that Becker had applied the phantom account offset to him.  Testa sued Becker under ERISA for denial of benefits and breach of fiduciary duty, alleging that Testa had defied the Court’s decision in Frommert.  The district court dismissed Testa’s denial-of-benefits claim as untimely but granted Testa summary judgment on his fiduciary-duty claim.  Becker appealed the latter; Testa cross-appealed the former.

Upon reviewing the case, the Court concluded that Testa’s denial-of-benefits claim is untimely (the the claim was brought 12 years after it accrued, so the 6 year statute of limitations had expired), and that Becker, not Testa, was entitled to summary judgment on the fiduciary-duty claim (Frommert did not apply to participants who did not bring timely denial of benefit claims).  Accordingly, the Court affirmed the judgment of the district court in part, reversed it in part, and remanded the case with directions to enter judgment for Becker and the Xerox Plan.

In Martone v. Robb, No. 17-50702 (5th Cir. 2018), Thomas Martone, a former Whole Foods employee, brought an action against certain Whole Foods executives who are named fiduciaries for the company’s 401(k) plan.  Martone alleges that these executives breached their fiduciary duties by allowing employees to continue to invest in Whole Foods stock while its value was artificially inflated due to a widespread overpricing scheme.  The district court dismissed the claims, finding that Martone failed to plausibly allege an alternative action that the fiduciaries could have taken that would have been consistent with the securities laws and that a prudent fiduciary in the same circumstances would not have viewed as more likely to harm the fund than to help it.

Upon reviewing the case, the Fifth Circuit Court of Appeals agreed with the district court’s finding and therefore affirmed the district court’s decision.

In Allen v. Credit Suisse Securities (USA), Nos. 16-3327-cv (L), 16-3571-cv (CON (2nd Cir. 2018)), the Second Circuit Court of Appeals (the “Court”) faced an appeal from a judgment by the district court, dismissing plaintiffs’ ERISA complaint for failure to state claims for which relief can be granted.  On the appeal, the plaintiffs fault the district court for failing to recognize that the defendant banks acted as ERISA functional fiduciaries in conducting foreign currency exchange transactions at issue and, thus, that their alleged manipulation of the foreign exchange market breached ERISA fiduciary duties owed to plaintiffs’ employee benefit plans.  Plaintiffs further fault the district court’s denial of their request for a 60-day adjournment and leave to file a fourth amended complaint.

Upon reviewing the case, the Court concluded that:

  1. Plaintiffs fail to allege facts showing that the defendant banks and their affiliates exercised the requisite level of control over the disposition of Plan assets so as to warrant their identification as ERISA functional fiduciaries with respect to the FX transactions at issue.

In Estate of Jones v. Children’s Hospital and Health System, Inc. Pension Plan, No. 17-3524 (7th Cir. 2018), three days into retirement and three days before the start of her pension, Linda Faye Jones died. The Administrative Committee, which oversees the Children’s Hospital and Health System, Inc. Pension Plan, denied the pension to Linda’s daughter and beneficiary, Kishunda Jones. The Committee reasoned that only spouses are entitled to benefits under the Plan when a participant dies before the start of her pension.

In this case, the plan provides that a surviving spouse benefit is available to a participant’s spouse when the participant dies “before the Participant’s annuity starting date.” No other benefit under the plan provides that it is available to beneficiaries if the participant dies before payments start. Upon reviewing the case, the Seventh Circuit Court of Appeals (the “Court”) held that the Administrative Committee’s decision was not arbitrary or capricious.  Accordingly, the Court affirmed the Administrative Committee’s decision to deny benefit to the participant’s daughter.

In Fletcher v. Honeywell Int’l, Inc., No. 17-3277 (6th Cir. 2018), the plaintiffs, on behalf of themselves and other similarly situated retirees, retirees’ surviving spouses, and eligible dependents, filed suit against defendant Honeywell International, Inc. to enforce their rights to retirement healthcare benefits under a series of Collective Bargaining Agreements (“CBAs”).  The district court held that the CBAs were ambiguous and relied on extrinsic evidence for its conclusion that the parties intended retiree healthcare benefits to vest for life.  The defendant appeals.

Upon reviewing the case, the Sixth Circuit Court of Appeals (the “Court”) ruled that, in a suit under the LMRA and ERISA to enforce their retirement healthcare benefits rights under a series of CBA’s, the retirees were not entitled to lifetime healthcare benefits because the CBAs’ general durational clauses, which provided that the CBAs would remain in effect only until specified dates, were unambiguous and applied to the retirees’ healthcare benefits.  Further, ruled the Court, consideration of extrinsic evidence was not warranted because the CBAs’ general durational clauses applied to the retirees’ healthcare benefits since there was no clear, affirmative language to the contrary, and the CBAs unambiguously did not provide for vested lifetime retiree healthcare benefits, even though the CBAs explicitly provided for lifetime healthcare benefits to retirees’ surviving spouses and dependents.

Based on these rulings, the Court overturned the district court’s holding.

In CNH Industrial N.V., Et Al. v. Reese (decided by U.S. Supreme Court on February 20, 2018), the U.S. Supreme Court (the “Court” ) reiterated its belief expressed in M&G Polymers USA, LLC v. Tackett, 574 U. S. ___ (2015), in which it required the Sixth Circuit Court of Appeals to interpret collective-bargaining agreements according to ordinary principles of contract law.  In that case, the Court rejected the Sixth Circuit’s use of the “Yard-Man inferences,” under which a court presumes, in a variety of circumstances, that collective-bargaining agreements vested retiree health benefits for life.  In the instant case, the Court found that the Sixth Circuit had returned to the Yard-Man inferences.  Thus, the Court again reversed the Sixth Circuit’s decision and remanded the case for further proceedings.

The Court said the following about the instant case.  Shorn of Yard-Man inferences, this case is straightforward.  The 1998 collective bargaining agreement contained a general durational clause that applied to all benefits, unless the agreement specified otherwise.  No provision specified that the retiree health care benefits were subject to a different durational clause.  The agreement stated that the health benefits plan “r[an] concurrently” with the collective-bargaining agreement, tying the health care benefits to the duration of the rest of the agreement.  If the parties meant to vest health care benefits for life, they easily could have said so in the text.  But they did not.  And they specified that their agreement “dispose[d] of any and all bargaining issues” between them. Thus, the only reasonable interpretation of the 1998 collective bargaining agreement is that the retiree health care benefits expired when the collective-bargaining agreement expired in May 2004.  When the intent of the parties is unambiguously expressed in the contract, that expression controls, and the court’s inquiry should proceed no further.

DOL Press Release, dated January 5, 2018, says the following:

The U.S. Department of Labor has finalized its decision that April 1, 2018 will be the applicability date for employee benefit plans to comply with a final rule under ERISA that will give America’s workers new procedural protections when dealing with plan fiduciaries and insurance providers who deny their claims for disability benefits.

The new rule ensures, for example, that disability claimants receive a clear explanation of why their claim was denied as well as their rights to appeal a denial of a benefit claim, and to review and respond to new information developed by the plan during the course of an appeal.  The rule also requires that a claims adjudicator could not be hired, promoted, terminated, or compensated based on the likelihood of denying claims.

In Williby v. Aetna Life Insurance Co., No. 15-56394, (9th Cir. 2017), a panel of the Ninth Circuit Court of Appeals (the “Panel”) vacated the district court’s judgment in favor of the plaintiff in an action under ERISA, challenging the termination of short-term disability benefits. The plan administrator had terminated the benefits, finding that the plaintiff was not disabled.

The Panel held that the district court erred by reviewing the denial by the plan administrator of the plaintiff’s benefits claim de novo, rather than for an abuse of discretion. The short-term disability plan included a discretionary clause, and thus by its terms called for abuse of discretion review. The Panel held that California Insurance § 10110.6, which invalidates such discretionary clauses in insurance plans, applied even though the disability plan was self-funded. ERISA, however, preempted § 10110.6 insofar as it applied. The Panel remanded for the district court to review the benefits denial under the correct (abuse of discretion) standard.

In Barton v. Constellium Rolled Products-Ravenswood, LLC, No. 16-1103 (4th Cir. 2017), a class of retirees and their union filed this action after their former employer unilaterally altered its retiree health benefits program.  After reviewing the case, the Fourth Circuit Court of Appeals (the “Court”) ruled that, because the governing collective bargaining agreement (the “CBA”) does not provide for vested retiree health benefits, the Court must affirm the district court’s grant of summary judgment to the employer.

In analyzing the case, the Court noted that the Supreme Court has recently held courts must interpret collective-bargaining agreements, including those establishing ERISA plans, according to ordinary principles of contract law, at least when those principles are not inconsistent with federal labor policy, and where the words of a contract in writing are clear and unambiguous, its meaning is to be ascertained in accordance with its plainly expressed intent. Thus, said the Court, we must interpret the CBA’s provision governing the retiree health, namely its Article 15, using ordinary contract principles. And in doing so, we must recognize that these principles foreclose holding that the retiree health benefits have vested unless unambiguous evidence indicates that the parties intended that outcome.

Article 15 of the CBA states that the retiree health benefits “shall remain in effect for the term of this . . . Labor Agreement.” Article 15 also provides that the parameters of the retiree health benefits programs “shall be set forth in [the] booklet[] entitled . . . Retired Employees’ Group Insurance Program.” That booklet, which serves as the SPD for these benefits, similarly states that these benefits would last “for the term of the Labor Agreement.” It is undisputed that the term of the 2010 CBA, the most recent one relevant, ended in 2012. As such, the plain language of the CBA and SPD clearly indicates that the retiree health benefits did not vest. First, Article 15 contains explicit durational language stating that the retiree health benefits continue “for the term of” the governing CBA. Furthermore, the SPD echoes this language, reiterating the benefits continue “for the term of the” CBA. The retirees cannot overcome the clear language of Article 15 of the CBA and the SPD. Given this language, the retirees cannot demonstrate that their health benefits had vested.

In an April 4 News Release, the U.S. Department of Labor (the “DOL”) announces a 60-day extension of the applicability dates of the fiduciary rule and related exemptions, including the Best Interest Contract Exemption.  The announcement follows a Feb. 3, 2017, presidential memorandum which directed the DOL to examine the fiduciary rule to ensure that it does not adversely affect the ability of Americans to gain access to retirement information and financial advice.  Here is what the News Release says.

Under the terms of the extension, advisers to retirement investors will be treated as fiduciaries and have an obligation to give advice that adheres to “impartial conduct standards” beginning on June 9 rather than on April 10, 2017, as originally scheduled.  These fiduciary standards require advisers to adhere to a best interest standard when making investment recommendations, charge no more than reasonable compensation for their services and refrain from making misleading statements.

The DOL has requested comments on the issues raised by the presidential memorandum, and related questions.  The DOL urges commenters to submit data, information and analyses responsive to the requests, so that it can complete its work pursuant to the memorandum as carefully, thoughtfully and expeditiously as possible.