March 2020 ERISA Litigation Update:

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.

  • With respect to the first issue, the court stated that the plaintiff was arguably constructively discharged by the defendant. That is because after the DOL trial, the defendant “showed its resentment when [the defendant] permanently enjoined [the plaintiff] from directly communicating with him unless it was through a third party.” Also, the defendant reassigned some of the plaintiff’s job responsibilities to another employee without telling her, and the defendant questioned the plaintiff’s job performance and attendance “for the very first time” during her lengthy employment.
  • With respect to the second issue, the court opined that the timing between the plaintiff’s DOL trial testimony (her ERISA-protected activity) and her alleged constructive discharge arguably establishes a causal link between the two.

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.

  • The plaintiffs alleged that the defendant controlled the menu of available mutual funds offered in its FundsNetwork (an investment platform of thousands of mutual funds and other investment vehicles offered to the participants’ plans) and retained the discretion to change its fund menus. More importantly, the defendant allegedly charged mutual funds “infrastructure fees” that the defendant negotiated with those mutual funds’ managers, and the mutual fund companies passed the additional costs of the infrastructure fees to the plans via their investment fees. The court acknowledged that after an entity contracts with an ERISA plan, the contract might give the entity such control over factors that determine its compensation from the plan that the entity thereby becomes an ERISA fiduciary with respect to that compensation. However, the court ruled that the defendant did not have such control here. As support for that ruling, the court noted that the defendant negotiated the payment of its infrastructure fees with the mutual funds, rather than unilaterally dictating those fees. Also, the plaintiffs did not “plausibly allege” that the defendant required mutual fund managers who pay the infrastructure fees to pass on those costs to the 401(k) plans. Thus, the defendant was not a fiduciary with respect to this allegation.
  • The plaintiffs also contended that the defendant was a fiduciary with respect to its use of omnibus accounts. (Under its contracts with plan sponsors, plan assets are held in omnibus accounts owned and controlled in trust by the defendant.) In particular, the defendant allegedly used those accounts as leverage when negotiating its fees with mutual fund managers who wanted their funds to be made available to potential investors under the FundsNetwork. The court ruled that this theory fails because the plaintiffs did not allege that, as directed trustee of the omnibus accounts, the defendant failed to follow plan sponsors’ and participants’ instructions as to which mutual funds were selected for investment, or how the investments should be allocated. Also, the plaintiffs did not allege that the defendants improperly redirected the plaintiffs’ plan investments through the omnibus accounts from mutual funds managed by companies that do not pay infrastructure fees to mutual funds managed by companies that do. Therefore, the defendant was not a fiduciary regarding this claim because, as directed trustee, it lacked discretion and simply took instructions from the plans that it was required to follow.
  • The plaintiffs further alleged that the defendant was a fiduciary because it controlled the menu of investment options available to the plans. However, the court noted that the defendant’s contracts with plan sponsors clearly stated that plan sponsors were solely responsible for selecting which investment options were available to participants via the FundsNetwork.

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.