For the second month in a row, the Internal Revenue Service and the U.S. Department of Labor were quiet on the retirement plans front. This was likely caused, at least in part, by their focus on drafting guidance pursuant to the SECURE Act (which I summarized in the January 2020 edition of this newsletter). Thus, this month’s edition simply provides my monthly ERISA litigation update.
ERISA Litigation Update: Given the continuing wave of ERISA litigation, this article has become a mainstay of The Speed Reader. A sample of cases that were recently filed, decided, or for which a court issued a procedural ruling, is provided below.
Eaves v. Eye Centers of Tennessee, LLC (procedural ruling issued on January 13, 2020 by the U.S. District Court for the Middle District of Tennessee): The plaintiff in this case is a participant in the defendant plan sponsor’s 401(k) plan. Several years into her employment, the plaintiff became concerned about her inability to access her plan funds and her supervisor’s (the defendant’s CEO) refusal to provide basic plan information to her. She subsequently testified in a DOL civil lawsuit involving the defendant, its CEO, and the plan, which resulted in the defendant (and its co-defendants) being ordered to restore over $500,000 to the plan.
Two weeks after the plaintiff testified in the DOL case, the defendant imposed significant restrictions on her ability to contact her supervisor. That led the plaintiff to resign from the company forty days after she testified in the DOL case. The plaintiff then filed this lawsuit, alleging that the defendant retaliated against her for testifying in that case, in violation of section 510 of ERISA. That section prohibits adverse action (e.g., discharge, suspension, discrimination) against individuals for exercising their ERISA rights or for testifying in any proceeding involving ERISA.
The court began its analysis by stating that because there is no dispute that the plaintiff engaged in ERISA-protected activity when she testified in the DOL case, the only remaining issues are (1) whether she suffered an adverse employment action and, if so; (2) whether there was a causal link between that adverse action and her ERISA-protected activity.
The court thus denied the defendant’s motion for summary judgment on the plaintiff’s’ ERISA retaliation claim, and the case will proceed in that regard. The court, however, granted the defendant’s motion for summary judgment on the plaintiff’s Tennessee whistleblower law claim, on the grounds that ERISA preempts such claim.
In re Fidelity ERISA Fee Litigation (decided on February 14, 2020 by the U.S. District Court for the District of Massachusetts): The plaintiffs in this case are participants in 401(k) plans offered by their employers, for which the defendant provides plan administration services and with respect to which the defendant allegedly breached its ERISA fiduciary duties to the plaintiffs. The following bullets summarize the plaintiffs’ allegations, as well as the court’s rulings regarding those allegations.
Thus, given the court’s opinion that the defendant was not a fiduciary in connection with any of the plaintiffs’ allegations, the court granted the defendant’s motion to dismiss the case.
Intel Corporation Investment Policy Committee v. Sulyma (procedural ruling issued by the U.S. Supreme Court on Feb. 26, 2020): The plaintiff worked for Intel from 2010 to 2012 and participated in two Intel retirement plans. In October of 2015, he sued the defendants (administrators of the plans), contending that they had managed the plans imprudently with respect to certain investment options. In this stage of the case, the U.S. Supreme Court addressed whether the participants’ suit is barred by the applicable statute of limitations.
The court noted that ERISA requires plaintiffs with “actual knowledge” of an alleged fiduciary breach to file suit within three years of gaining that knowledge, rather than within the 6-year period that would otherwise apply. In this connection, the defendants argued that the suit was filed untimely because the plaintiff filed it more than three years after the defendants disclosed relevant investment information to him. The plaintiff countered that although he frequently visited the website that contained those disclosures, he did not remember reviewing the disclosures, and he was unaware of the allegedly imprudent investments while working at Intel.
The court began its analysis by stating that “[a]lthough ERISA does not define the phrase “actual knowledge,” its meaning is plain.” Citing several dictionaries, the court concluded that “to have “actual knowledge” of a piece of information, one must in fact be aware of it.” The court then held that a plaintiff does not necessarily have “actual knowledge” of the information contained in disclosures that he receives but does not read or cannot recall reading. Rather, to satisfy ERISA’s “actual knowledge” requirement, the plaintiff must in fact have become aware of that information. As a result, the case will go back to the lower court for further proceedings on this issue.
The court went on to say that nothing in this opinion forecloses any of the usual ways to prove actual knowledge. For example, actual knowledge can be proved through “inference from circumstantial evidence” (e.g., electronic records showing that a plaintiff viewed the relevant disclosures, and evidence suggesting that the plaintiff took action in response to the information contained in them). The court also noted that this holding “does not preclude defendants from contending that evidence of “willful blindness” supports a finding of “actual knowledge.”
Based on this holding, plan sponsors may wish to discuss with their plan administrators whether a feature can be added to their electronic disclosures whereby participants must confirm that they read and understood the disclosures.
Scalia v. Preschel (decided on February 27, 2020 by the U.S. District Court for the District of New Jersey): The DOL has proven that the defendant, who served as trustee of an ERISA retirement plan, embezzled approximately $186,000 from the plan and willingly failed to file the plan’s required annual report. Of course, both acts violated ERISA. Therefore, the court has (1) sentenced the defendant to 30 months in prison, followed by three years of supervised release; (2) ordered him to pay $462,049 in restitution to the plan; and (3) fined him $10,000.
Baker v. John Hancock Life Insurance Company (complaint filed on February 27, 2020 in the U.S. District Court for the District of Massachusetts): In this proposed class action lawsuit, the plaintiffs are participants in the defendant plan sponsor’s 401(k) plan. They allege that the defendant breached its ERISA fiduciary duties with respect to the plan by (1) “applying an imprudent and inappropriate preference for John Hancock products within the Plan, despite their poor performance, high costs, and lack of traction among fiduciaries of similarly-sized plans;” and (2) failing to monitor or control the plan’s recordkeeping expenses. In sum, the plaintiffs argue that “[i]nstead of acting in the best interest of Plan participants, Defendant’s conduct and decisions were driven by its desire to drive revenues and profits to John Hancock and to generally promote John Hancock’s business interests.” Consequently, the defendant allegedly failed to discharge its duties solely in the interest of plan participants, and for the exclusive purpose of providing benefits to participants and defraying reasonable expenses of administering the plan.
The plaintiffs mainly seek a court order requiring the defendant to personally “make good” to the plan all losses that the plan incurred as a result of the alleged breaches, and to award attorneys’ fees and costs to the plaintiffs.