June ERISA Litigation Update:

Given the continuing wave of ERISA litigation, this article has become a mainstay of The Speed Reader. Cases that were filed or resolved recently are outlined below, although please note that this list is not exhaustive.

  • Acosta v. Beverly (decided on May 2, 2018 by the U.S. District Court for the Eastern District of North Carolina):  Pursuant to a DOL investigation, the court has ordered the defendant in this case (the former owner of a now-defunct plan sponsor, who also served as a fiduciary to the plan sponsor’s profit sharing plan) to pay restitution totaling $1,639,983 to the plan. This judgment results from the defendant’s issuance of checks from the plan’s account to the plan sponsor, to himself, and to other entities for purposes prohibited by ERISA. For example, the defendant admitted that some checks were used to make payments on company-owned and personal properties. In addition to the restoration of funds, the defendant will have to pay a successor fiduciary to handle remittance of this restitution to plan participants and beneficiaries, and the defendant will have to pay a penalty under ERISA of 20% of the $1,639,983 restitution amount.
  • Kovarikova v. Wellspan Good Samaritan Hospital (decided on May 7, 2018 by the U.S. District Court for the Middle District of Pennsylvania):  The plaintiff in this case is a participant in the defendant’s retirement plan. She alleged that the defendant misrepresented to her that her retirement benefit would not change, or would only change to her advantage, when the defendant terminated the residency program in which the plaintiff participated. The plaintiff further claimed that she relied on the alleged misrepresentation (by suspending her search for a new job) under the mistaken belief that her existing plan benefits would not change. The court first stated that ERISA plan fiduciaries have a duty to ensure that participants who inquire about existing benefits receive all relevant information (even if participants do not ask all the relevant questions). However, the court also stated that with respect to participants who inquire about future benefits, fiduciaries do not have a duty to inform participants about plan changes unless such changes are under serious consideration when the participant makes his or her inquiry. Applying those rules, the court stated that: (1) there was no evidence in this case that the defendant misinformed the plaintiff about  her existing benefits; and (2) there was no evidence that changes to the plaintiff’s future benefits were under serious consideration at the time the alleged misrepresentations were made. Therefore, the alleged misrepresentations were not material misrepresentations, and the defendant incurred no liability in this regard.
  • Ramsey v. Philips North America LLC (settlement agreement submitted to the U.S. District Court for the Southern District of Illinois on May 11, 2018):  In this case, the plaintiffs (participants in the defendant plan sponsor’s 401(k) plan) contended that the defendants (the plan’s fiduciaries) violated ERISA, chiefly by: (1) causing the plan to pay unreasonable investment management and administrative fees; (2) retaining a money market fund as plan’s only capital preservation investment option; and (3) selecting and retaining an investment option that “consistently underperformed” prior to and after its inclusion in the plan. The defendant continues to deny the plaintiffs’ allegations and to deny that the plan’s fiduciaries committed or participated in any fiduciary breaches. Nonetheless, the defendant has agreed to pay $17 million to a settlement fund that will be used to pay the participants’ purported recovery amount, attorneys’ fees and costs, administrative expenses of the settlement, and the class representatives’ compensation for serving as the class representatives. In addition, the defendant has agreed to certain non-monetary terms. Those include conducting an RFP process for recordkeeping services and hiring an independent consultant to make recommendations to the plan’s fiduciaries regarding whether to retain the money market fund and whether to add a stable value fund (or a comparable fund).
  • Acosta v. Stephens (settlement agreement reached on May 14, 2018 in the U.S. District Court for the Northern District of Alabama):  In this case’s criminal proceedings, the defendant (the former benefits administrator of a union’s retirement and welfare plans) was sentenced to serve six months of home confinement, five years of probation, and to make restitution to the retirement plan in the amount of $45,896. Now, in this case’s civil proceedings, the DOL and the defendant have agreed that she is permanently enjoined from acting as a fiduciary, trustee, agent, or representative to any ERISA plan. This stems from a DOL investigation that found the defendant: (1) altered her paychecks by increasing the amount she was owed; (2) diverted payroll checks and other expense account checks to herself by securing signatures of plan trustees and substituting her own name for the names of the rightful payees; (3) entered false information on paper stubs attached to the checks; and (4) made fraudulent entries in the plans’ accounting records.
  • Daugherty v. The University of Chicago (settlement agreement submitted to the U.S. District Court for the Northern District of Illinois on May 22, 2018):  The plaintiffs here,  participants in the defendant’s retirement plans, mainly assert that the defendant violated ERISA by imprudently selecting and maintaining certain investment options in the plans and by paying excessive recordkeeping and administrative fees to the plans’ service providers (e.g., by retaining two recordkeeping companies when one would have allegedly sufficed and  been less expensive). The parties have decided to settle the case for $6.5 million, which will be used to pay the participants’ alleged damages, as well as the administrative costs associated with implementing the settlement, independent fiduciary fees, and attorneys’ fees and costs. However, the defendant continues to assert that it did not violate ERISA in that it properly managed its retirement plans and had prudent processes in place to evaluate recordkeeping fees and investment options.
  • Acosta v. Cambridge Technology Group Inc. (decided on May 22, 2018 by the U.S. District Court for the Eastern District of Virginia):  Pursuant to a DOL investigation involving a 401(k) plan sponsor that has been defunct since approximately 2004, the court has ordered the appointment of an independent fiduciary to distribute the plan’s assets to its participants. The court has also ordered the removal of the plan sponsor’s former president and CEO (who also served as plan trustee) as a plan fiduciary. The court’s order results from a DOL finding that the plan sponsor and that individual violated ERISA by failing to: (1) keep participants or the plan’s custodian aware of that individual’s contact information for distribution request purposes; (2) process any participant distribution requests; and (3) terminate the plan.
  • Divane v. Northwestern University (decided on May 25, 2018 by the U.S. District Court for the Northern District of Illinois):  In a win for plan sponsors, the court has dismissed this typical ERISA case and ruled that the defendant did not violate ERISA. First, the court opined that although the plaintiffs claimed that the inclusion of two of the   recordkeeper’s investment funds in the defendant’s retirement plans was imprudent, no plan participant was required to invest in those funds. Therefore, plan participants could avoid what the plaintiffs consider to be the problems with those funds (excessive record-keeping fees and underperformance) simply by choosing other options. Also, the defendant had valid reasons for including those funds. Second, with respect to the plaintiffs’ claim that the defendant allowed the plans to pay record-keeping expenses through revenue sharing and failed to prevent those fees from being excessive, the court concluded that revenue sharing does not violate ERISA and that participants were able to invest in several options that had extremely low expense ratios. Third, the court rejected the plaintiffs’ assertion that the plans’ range of investment options was too broad and that fees charged by some funds were too high. In this connection, the court noted that several low-cost funds were available under the plans. Fourth, although the plaintiffs contended that the defendant improperly allowed the recordkeeper to market products to plan participants, the court ruled that releasing confidential information or allowing someone to use confidential information does not constitutes a breach of fiduciary duty under ERISA. Also, the court stated that participants’ confidential information was not a plan asset. Apparently as overarching support for its conclusions, the court cited “Congress’s hope that [ERISA] litigation would not discourage employers from offering plans” to employees.