Consider a situation in which a former employee alleges that he or she did not receive a COBRA election notice. That’s the notice that must be provided to group health plan participants when they lose coverage as a result of certain events, including termination of employment, and that gives the participants information regarding their rights and obligations to elect COBRA continuation coverage. If a court finds that the employer failed to provide the notice, the court could (1) allow the employee to retroactively elect coverage after the election period otherwise would have ended, (2) award statutory penalties of up to $110 per day to the employee, or (3) provide other relief to the employee. There is also an excise tax for COBRA failures, including failure to provide a COBRA election notice, of $100 per day per failure. An employer must report the excise tax on Form 8928, and the statute of limitations generally would not start running unless and until the employer does so.

To prevail at the summary judgment stage and avoid a trial, some courts hold that the plan administrator has the burden of proving that the election notice was properly sent to the employee. So, what evidence does the plan administrator need to establish that the notice was sent? According to a recent decision, a declaration of the employer’s normal business practices may not be enough to win a motion for summary judgment.


Continue Reading Benefit Plan Record Retention – A Cautionary Tale from Louisiana

On July 10, 2019, the Sixth Circuit considered vexing questions of statutory interpretation in an ERISA case.  A dispute over whether a transaction bonus plan was an ERISA employee pension benefit plan hinged on the meaning of two terms common in federal statutes: “results in” and “extending to.”  While the meaning of the statute was plain to the entire panel, Judges Stranch and Thapar quarreled over the evidence that a court might rightly consider when interpreting a statute—in this case, ERISA.  Judge Thapar argues that “[c]ourts should consider adding [corpus linguistics] to their tool belts.”

Continue Reading Corpus Linguistics and ERISA Litigation

On August 20, 2019, the Ninth Circuit held in Dorman v. Charles Schwab Corp. that a 401(k) plan’s mandatory arbitration clause was enforceable in relation to a breach of fiduciary duty claim brought under ERISA § 502(a)(2).  No. 18-15281 (9th Cir. Aug. 20, 2019).  This is the first case in which the Ninth Circuit concluded that such fiduciary breach claims could be arbitrated.

Continue Reading Ninth Circuit Opens the Door to Arbitration in ERISA Fiduciary Breach Claims

After a few years of decline, litigation involving 401(k) plans “has surged again recently,” according to a study published by the Center for Retirement Research at Boston College.  This is likely not news to 401(k) sponsors and service providers, who are confronted with this reality on a near daily basis.  However, the study is a fascinating read, in part because it chronicles many cases brought since 2006, but also because it discusses the consequences of all this litigation—both the good and the not-so-good.

Complaints filed by participants of 401(k) plans against their plan fiduciaries over the past ten years follow a pattern.  Section 401(k) plan litigation exploded during the recession in 2008, with many allegations targeting funds holding employer stock whose value plummeted.  The number of lawsuits peaked at 107 in 2008, and 2009 remains second on the list for number of 401(k) lawsuits filed over the past 12 years.

Section 401(k) litigation tapered off during the first few years of this decade, with the Supreme Court’s 2014 Dudenhoeffer v. Fifth Third Bancorp decision delivering a devastating blow to the so-called “stock drop” cases.[1]

Although the Court agreed with the Sixth Circuit that employer stock ownership plan (ESOP) fiduciaries are not entitled to a special “presumption of prudence,” its discussion of the difficulty such allegations faced in meeting the pleading standard led to many dismissals.

But starting around 2015, the study finds, 401(k) litigation began to surge again.  The more recent cases focus on “excessive fees” paid either for actively managed investment funds or for record-keeping and other administrative services.  There has been a corresponding shift in who is sued: record-keepers, third-party administrators, and other plan service providers are increasingly named as defendants, in addition to or instead of the employees or fiduciary committees of plan sponsors.  The plaintiffs in many of these “excessive fees” cases probe the complicated—and sometimes opaque—fee structures between plan service providers such as record-keepers and investment advisors for what plaintiffs believe to be hidden kickbacks.


Continue Reading ERISA Litigation Surging – Focus on Fees

Our colleague Jason Levy recently published an article in The Actuary Magazine on the Department of Labor’s fiduciary conflict rule.  More than six years in the making, this rule represents perhaps the most significant regulation from the DOL during the Obama Administration.

The fiduciary conflict rule expands the definition of fiduciary to cover, with certain exceptions, all investment advice provided to a retirement plan (like a 401(k) plan, defined benefit pension plan, or an IRA), or to a participant or beneficiary in any of those retirement plans.  The rule imposes fiduciary status on a broad category of professionals, including many broker-dealers who previously had taken the position that they were not investment advice fiduciaries based on a DOL regulation that had been in place since 1975.

In contrast to the sweeping changes it imposes on investment advice professionals, the fiduciary conflict rule will have a far more modest effect on employers.  The rule is not intended to confer fiduciary status on sponsors of retirement plans.  Likewise, there had been concern under the proposed version of the rule that human resources and other employees who interact with participants might be considered fiduciaries when they discuss retirement plan investments with their co-workers.  However, the final version of the rule provides that, absent unusual circumstances, such employees would not be covered.

Nevertheless, the fiduciary conflict rule has important implications for employers that sponsor retirement plans.


Continue Reading What Employers Need to Know About the Fiduciary Conflict Rule

The U.S. Court of Appeals for the Sixth Circuit recently affirmed the crucial importance of accurate plan summaries in the post-Amara world. To date, part of the legacy of CIGNA v. Amara has been an uptick of cases in which ERISA plaintiffs allege a material mismatch between a plan document and a summary plan description (“SPD”). Plaintiffs petition the court to use the broad equitable remedies available under ERISA § 502(a)(3) after Amara to reform the plan document to reflect the interpretation the plaintiff favors—even if the plan’s terms on the subject were crystal clear.
Continue Reading Reformation Claim May Proceed Despite Clear Plan Terms, Sixth Circuit Holds

A recent Massachusetts district court decision in In Re Fidelity ERISA Float Litigation highlights the need for ERISA fiduciaries to evaluate the treatment of a particular type of interest called “float income” to ensure compliance with ERISA. The Department of Labor has long taken the position that retention of float income without sufficient disclosures can constitute prohibited self-dealing. In Re Fidelity ERISA Float Litigation and a March 2014 Eighth Circuit decision, Tussey v. ABB, indicate that fiduciaries should review the structure and documentation of accounts that generate float income to determine whether the interest is a plan asset. As discussed in more detail below, if float income is determined to be a plan asset, fiduciaries should ensure that they comply with Department of Labor guidance.
Continue Reading What Every ERISA Fiduciary Should Consider About Float Income

For sponsors and fiduciaries of employee benefit plans, the Amara case has presented many interesting and important issues that have been discussed at length in this blog and elsewhere. However, the most recent chapter in this long-running dispute has not garnered nearly as much attention as either the Supreme Court or Second Circuit decisions that came before it. Nonetheless, this latest decision, Cigna Corporation v. Executive Risk Indemnity, raises a critical issue for plan sponsors and fiduciaries: what is and, perhaps more importantly, what is not, covered by fiduciary and other liability insurance policies.

The facts of the Executive Risk case are relatively straightforward. Cigna sought a declaratory judgment that it was entitled to coverage under its fiduciary liability policies for claims asserted in the Amara case. The insurers denied coverage, relying on a policy exclusion for “deliberately fraudulent or criminal acts or omissions.” The trial court ultimately applied the exclusion and denied coverage.

Given the considerable amount at stake, the decision is undoubtedly important to Cigna, Executive Risk, and the other insurers who were defendants in the case. However, other plan sponsors and fiduciaries would be wise to understand the significance of this decision as well: insurance coverage cases often turn on the language of the insurance policies in question and there generally is not “standard” policy language on many critical issues.


Continue Reading ERISA Liability Insurance: Know What’s Covered . . . And What Isn’t

Not all benefits claims are created equal. At least, not from a risk management perspective. Benefits claims that reach issues applicable to a broad class of participants have the potential to exponentially increase liabilities.

Kifafi v. Hilton illustrates this risk. A recent court order quantified the cost of a judgment that Hilton Hotels and its retirement plan (“Hilton”) violated ERISA’s vesting and anti-backloading requirements. To date, Hilton has paid $33.3 million to more than 11,000 class members, approximately $22 million to Plaintiffs’ counsel, and provided notice of increased benefits to another approximately 5,600 participants.

A single individual’s claim for benefits was the genesis of this multi-million dollar award.


Continue Reading Risk Management Lessons from a Multi-Million-Dollar Class Action Award

In Lees v. Munich Reinsurance America, Inc., a federal district court in New Jersey recently held that an oral misrepresentation could serve as the basis for a fiduciary breach claim.

The plaintiff in Lees worked for American Re-Insurance Company (a predecessor of the defendant), but was being paid by a related entity. Several years