Revenue Sharing 401(k) Claim Dismissed

A federal court in Wisconsin held that an employer, trustee for the employer's 401(k) plans, and the investment advisor of the 401(k) funds cannot be liable under ERISA for failing to dislose that the investment advisor shared some of the fees it received with the trustee of the 401(k) plan.  Hecker v. Deere & Co., 2007 WL 1874367 (W. D. Wis. June 21, 2007).

The trustee in the case was Fidelity Trust and the investment advisor was one of its corporate siblings, Fidelity Research.

The court held that (1) ERISA's disclosure provisions don't require disclosure of revenue sharing and (2) it is not a breach of an ERISA fiduciary duty to fail to disclose revenue sharing arrangements.



Restitution Claim Against Fiduciaries to Be Heard by Supreme Court

On June 12, 2007, The United States Supreme Court agreed to hear LaRue v. DeWolff, Boberg & Assoc., 06-856, a case in which a court of appeals held that a plan participant could not sustain a claim for restitution under ERISA against fiduciaries of his 401(k) plan.  See 458 F.3d 359 (4th Cir. 2006).  In this case, the plan participant claimed that the fiduciaries had failed to follow his directions regarding investments in his account.  The court of appeals for the 4th Circuit held that the provisions of ERISA relied upon by the plan participant for his claim, 29 U.S.C. § 1132(a)(2) and (3), do not permit individual recovery and the plan participant did not allege any unjust enrichment, self-dealing or unlawful possession that would permit recovery under subsection (3), which is the provision governing equitable relief. 

The Supreme Court's analysis of this matter is likely to be a far reaching decision and should be closely watched.


Garnishment of Criminals Retirement Funds Permitted Under MVRA

In a 2007 case from the Ninth Circuit Court of Appeals, United States v. Novak, 476 F.3d 1041, the court held that the Mandatory Victims Restitution Act of 1996 (MVRA) permits criminal restitution orders to be enfoced by garnishing retirement funds.  The only funds that can be used, however, are those where the defendant has a current, unilateral right to receive payments under the terms of the retirement plan.

The court held that the anti-alienation provisions of ERISA, 29 U.S.C. § 1056(d)(1), do not prevent the garnishment of funds permitted by the MVRA.

The relevant provision of the MVRA reviewed by the court was 18 U.S.C. § 3613.


Benefits Denials ERISA Section 1133 Requirements

Section 1133 of ERISA (29 U.S.C. § 1133) requires that a notice of a denial of benefits sent to a plan participant or that participant's beneficiary provide adequate notice of the denial containing the specific reasons for the denial that are written in a manner calculated to be understood by the recipient of the notice.

Section 1133 also requires that the employee benefit plan provide such plan participant or beneficiary a reasonable opportunity for a full and fair review of the decision to deny the claim by the appropriately named fiduciary.

It is recommended that the benefit denial should provide notice of the plan participant's opportunity to appeal the denial, submit additional information, and what type of information is needed for the appeal.


403(b) Litigation Heats Up

Here's an interesting article regarding ERISA class actions explaining how plaintiff's class action lawyers are modeling 403(b) litigation after 401(k) litigation.  As this article explains, employers offering 403(b) plans should review the fees the charged by their plans and investment options. 

Court Finds that Plan's Denial of Benefits Was Arbitrary and Capricious

If a plan provision regarding benefits is unambiguous, a court will review the plan administrator's decision regarding benefits as a matter of law.  In Brown v. Workforce Stabilization Plan, No. 06-4133 (10th Cir. July 3, 2007), the court held that the plan administrator's denial of benefits was arbitrary and capricious because it conflicted with the unambiguous plan provisions regarding benefits.

The plan administrator had determined that certain union employees were not eligible for benefits guaranteed under an employee benefit plan governing employees who are laid off as the result of a company merger.  The plan administrator's articulated rationale for denying the benefits was that the list of benefits available to those employees under their collective bargaining agreement did not specifically include the plan at issue.  The court found that the plan administrator's decision conflicted with the plain language of the collective bargaining agreement in that the list of available benefits was not exhaustive and had language including the benefit plan at issue.


Denial of Benefits Reviewed De Novo if No Discretion

A court reviewing a plan administrator or fidicuary's decision to deny benefits will apply a de novo standard of review if the plan does not give the plan administrator of fiduciary discretion in the determination of whether to grant or deny benefits.

 Under a de novo standard, the court will take a fresh look at the decision without regard for the decision made by the plan administrator or fiduciary.



Standard of Review of Plan Administrator's Decision on a Benefits Request - Generally

If a benefit plan gives discretion to the plan administrator regarding benefit determinations, a court typically will review that decision applying the stringent arbitrary and capricious standard.  Under this standard, the court reviews the plan administrator's decision and analyzes whether the plan administrator's interpretation of the plan was "reasonable" and made in "good faith."

In cases where the plan administrator operates under an inherent or proven conflict of interest or there is a serious procedural irregularity in the administrative process, a court will adjust the standard of review applying a sliding scale approach.  Under this approach, the court continues to apply the arbitrary and capricious standard but decreases the level of deference given in proportion to the seriousness of the plan administrator's conflict.

If the individual seeking benefits can establish a serious conflict of interest or the existence of a serious procedural irregularity, then the burden shifts to the plan administrator to prove the reasonableness of its decision under the arbitrary and capricious standard.  The plan administrator must show that that its interpretation of the terms of the plan is reasonable and that its application of those terms to the individual seeking benefits is supported by substantial evidence.

Pay or Play State Mandated Health Care Coverage and Barriers Caused by ERISA

The weekend edition of the Wall Street Journal, dated July 7-8, 2007, reported on how ERISA might serve as a bar to state mandated pay or play strategies for insurance coverage.  If you subscribe to the Wall Street Journal, you can read how under the pay or play concept, employers must either provide health insurance or contribute to a fund subsidizing insurance coverage for those who cannot afford it.  ERISA has been criticized for prohibiting states (based on federal preemption) from imposing state rules on multiemployer health plans. 

Ripeness Generally

In order for an individual to bring a lawsuit, the individual's claim must be based on an actual, present controversy and cannot be speculative or hypothetical.  In the context of employee benefits, courts generally require the individual to be entitled to apply for the benefit or that the individual have a right to the benefit, such as a vested or contractual right that cannot be taken away.

Pension Claims Cannot Be Brought in Court if a Nonretired Member Is Not Entitled to Apply for Benefits

Claims related to the calculation of retirement benefits are not ripe for judicial review until the individual is entitled to apply for such benefits. In Ames v. RTD & Amlgamated T. Union Div. 1001 Pension Plan, Civ. A. No. 05-CV-01567-WYD-BNB (D. Colo. Mar. 20, 2007), Judge Wiley Daniel held that claims of non-retired members of a pension plan related to the calculation of their benefits are not ripe and should be dismissed under Rule 12(b)(6). The court applied the following standard, which is to determine whether: (1) the case concerns “uncertain or contingent events that may not occur as anticipated, or indeed may not occur at all;” and (2) “the challenged action or allegations create a direct or immediate dilemma for the parties.” The court dismissed the claim of the non-retired members finding that they were speculatively based on unknown future events, making it impossible to calculate their final average earnings, retirement date, and date of retirement. The court also held that since the non-retired members had not retired or applied for benefits, there was no controversy. In addition, there was no direct and immediate dilemma because these individuals had not received any benefits.