July ERISA Litigation Update:

Given the continuing wave of ERISA litigation, this article has become a mainstay of The Speed Reader. Cases that were recently settled, decided, or for which courts issued procedural rulings, are outlined below. Please note, however, that this list is not exhaustive.

Velazquez v. Massachusetts Financial Services Company (settlement agreement submitted on June 14, 2019 to the U.S. District Court for the District of Massachusetts):  This class-action lawsuit involves two defined contribution plans sponsored by the main defendant. (The plaintiffs also named the two plans’ committees as defendants.) The plaintiffs mainly allege that the defendants included imprudent investment options in the plans and failed to monitor properly the service providers’ performance and fees. The parties have agreed to settle the case for the amount of $6,875,000, which includes attorneys’ fees and other litigation expenses.

The settlement agreement also includes the following non-monetary terms: (1) for at least three years, the qualified default investment alternative will be one or more target date funds that are unaffiliated with the defendant plan sponsor and that are index funds; and (2) for at least three years, the defendants will retain an independent third-party investment consultant to provide an annual evaluation of the plans’ investment lineup and review the plans’ investment policy statement. As is often the case with these settlements, the defendants deny all the plaintiffs’ allegations of wrongdoing and deny that the plans’ participants suffered any losses. Also, the court must approve the settlement agreement.

Fessenden v. Reliance Standard Life Insurance Company (procedural ruling issued on June 25, 2019 by the U.S. Court of Appeals for the Seventh Circuit):  The plaintiff in this case filed a claim for long‐term disability benefits under the defendant’s ERISA plan, and the defendant denied his claim. The plaintiff then filed an appeal with the defendant. The defendant failed to issue its decision regarding that appeal within the timeframe mandated by ERISA’s claims and appeals regulations, and the plaintiff sought review of the defendant’s benefit denial in federal court. Eight days after the plaintiff filed this lawsuit, the defendant issued an appeal decision, again denying the claim. The appeals court’s opinion addressed whether the defendant’s tardiness affects the district court’s standard of review.

The defendant argued that it “substantially complied” with the regulations’ deadline because the defendant was “only a little bit late” in rendering its appeal decision and, therefore, the proper standard of review is as follows: a court can only overturn the defendant’s decision to deny the plaintiff’s claim if that decision was arbitrary and capricious. In rejecting that argument, the appeals court stated that a plan administrator “may be able to “substantially comply” with other procedural requirements, but a deadline is a bright line.” Therefore, because the defendant “violated a hard‐and‐fast” deadline set forth in applicable ERISA regulations, the defendant’s untimely decision to deny the plaintiff’s benefit claim is not entitled to deference (i.e. the arbitrary and capricious standard). The appeals court then remanded the case to the district court for further proceedings. In those proceedings, the district court will not be permitted to apply the employer-friendly arbitrary and capricious standard when determining if the defendant properly denied the plaintiff’s benefit claim.     

Wilson v. Safelite Group, Inc. (decided on July 10, 2019 by the U.S. Court of Appeals for the Sixth Circuit):  The plaintiff in this case, who is the defendant’s former CEO, sued the defendant  regarding its alleged mismanagement of its nonqualified deferred compensation plan for executive employees. (After his employment ended, a federal audit revealed that some of the plaintiff’s plan elections violated section 409A of the Internal Revenue Code. Consequently, the plaintiff owed income taxes and incurred substantial tax penalties.) The district court found that the plan is an employee pension benefit plan under ERISA, rather than a bonus plan that is exempted from ERISA, and thus the plaintiff’s state law claims for breach of contract and negligent misrepresentation are preempted by ERISA.

The appeals court explained that the plan’s provisions include the following:

  • Eligible employees can defer a certain amount of their compensation by submitting an election form before January 1 of each year. The form specifies the percentage of their compensation they elect to defer and in which year or years they want to receive distributions of such deferred income.
  • Eligible employees can take in-service distributions. Upon termination of employment, they can receive their account via a lump sum payment or via periodic payments.  

The appeals court then concluded that the plan fits within ERISA’s definition of an “employee pension benefit plan” because the plan is a “plan, fund, or program . . . by its express terms or as a result of surrounding circumstances…[that] results in a deferral of income by employees for periods extending to the termination of covered employment or beyond.” Therefore, the district court’s finding was proper.