In a recent decision involving fiduciary duties in Employee Stock Ownership Plans (ESOPs), the Supreme Court emphasized an important limit on the pre-eminence of the plan document. Recent Supreme Court decisions, primarily in the welfare benefit plan context, have emphasized the primary importance of the plan document in establishing a fiduciary’s obligations and a participant’s rights.
It’s not often that an ERISA issue gets prominent play in the press, but a recent article by Gretchen Morgenson is an exception. A Lone Ranger of the 401(k)’s began:
The arithmetic could not be simpler. The more fees you pay in your 401(k) plan, the less cash you’ll have for retirement.
Still, fees hidden from view can make it hard for 401(k) holders to find out what they are paying. Plan sponsors, usually an employer, have a fiduciary duty to safeguard workers’ retirement accounts. But sponsors don’t always push providers like mutual funds to reduce fees or cut costs.
That may be about to change. On March 19, the Eighth Circuit Court of Appeals in St. Louis affirmed a lower-court ruling in one of the first 401(k) fee cases to go to trial. In that case, the court found that ABB Inc., a power and automation technology company, failed to monitor its plan’s internal costs and paid excessive fees by not negotiating for rebates from investment companies whose funds were offered in the plan. This, the court said, violated ABB’s fiduciary duties to the 401(k) participants
The Sixth Circuit has just taken an “unprecedented and extraordinary step to expand the scope of ERISA coverage” (in the words of the dissent) by affirming a judgment directing a disability insurer to pay about $900,000 in improperly denied benefits plus disgorge an additional $3,800,000, representing profits it allegedly made on the benefits. I agree with the dissent; this represents a significant expansion of potential liability for ERISA fiduciaries in the Sixth Circuit. Continue reading
ERISA requires fiduciaries to follow a prudent person standard regarding investment decisions. For plans requiring investment in the employer’s stock, often called Employee Stock Ownership Plans, or ESOPs, courts have developed a presumption that the investment in employer stock is prudent. A recent 9th Circuit case has addressed the limits of that presumption. Harris v. Amgen, Inc., — F.3d –, 2013 WL 2397404 (9th Cir. June 4, 2013). Continue reading
I will be speaking in an upcoming live phone/web seminar, “ERISA Equitable Remedies After McCutchen and Amara” scheduled for Wednesday, July 10, 1:00pm-2:30pm EDT. Because you are a reader of this blog, you are eligible to attend this program at half off. As long as you use the links in this post, the offer will be reflected automatically in your cart.
We will discuss the Supreme Court’s McCutchen decision, the impact of the ruling on the scope of “appropriate equitable relief,” particularly in light of Amara, ramifications for plan claims for reimbursement and subrogation, and best practices for equitable relief claims in post-McCutchen and Amara.
After our presentations, we will engage in a live question and answer session with participants so we can answer your questions about these important issues directly.
I hope you’ll join us.
Or call 1-800-926-7926 ext. 10
Ask for McCutchen, Amara & ERISA Equitable Remedies on 7/10/2013
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Life insurance plans, accidental death and dismemberment plans, and disability plans often exclude coverage for losses that occur while the participant is intoxicated, or where the loss is intentionally self-inflicted. Though these exclusions are often very clear, they are often the subject of contentious disputes over what, exactly, they mean, or were intended to mean, or should be interpreted as meaning.
A example of this can be found in Rau v. Hartford Life & Acc. Ins. Co., 2013 WL 1985305 (D. Conn. May 13, 2013). In Rau, Katie Rau went out one night and got monumentally intoxicated (0.3% blood alcohol level). While being driven home by a friend, she pulled herself from the passenger seat into the open window of the pickup truck, with only her legs inside. After exclaiming “look what I can do,” she fell backwards out of the pickup, hit her head on the pavement, and died. Continue reading
Revenue sharing is an arrangement under which a mutual fund in which pension assets are invested pays a portion of its fees to the entity that services the pension plan. In Leimkuehler v. American United Life Ins. Co., 713 F.3d 905 (7th Cir. 2013), the Seventh Circuit held that the arrangement did not violate ERISA fiduciary duties (at least as implemented in the case at hand). The court provided a helpful explanation of what revenue sharing was in general, and how it fits into the context of the management and operation of a 401(k) plan. Continue reading
It is well-established that and ERISA pension plan administrator has a fiduciary duty to invest plan assets prudently. This duty is called, unimaginatively, the “prudent-man rule” – or perhaps the gender-neutral “prudent-person rule.” This rule, which existed long before ERISA was enacted, is enshrined in the text of the statute, which requires fiduciaries to use “the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.” 29 U.S.C. § 1104(a)(1)(B).
With the benefit of hindsight, one might think that investing a significant fraction of plan assets in mortgaged-backed securities would be the height of imprudence. But, as the Second Circuit recently confirmed in Pension Ben. Guar. Corp. ex rel. St. Vincent Catholic Med. Centers Retirement Plan v. Morgan Stanley Investment Mgt Inc., 712 F.3d 705 (2d Cir. 2013), the use of hindsight is impermissible when considering the prudent person rule. Continue reading
It is a problem that ERISA causes family-law and estate practitioners. A person participates in an employee pension plan, and has designated her spouse as beneficiary. There is a divorce, and the spouse waives any claim to the pension as part of the property settlement, but no Qualified Domestic Relations Order (QDRO) is ever issued. To add insult to injury, the plan participant never bothers to change the beneficiary designation. Plan participant later dies, and the retirement plan administrator pays the death benefit to the ex-spouse.