October 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 decided or filed is provided below.

Bergamatto v. Board of Trustees of the NYSA- ILA Pension Fund (decided on August 6, 2019 by the U.S. Court of Appeals for the Third Circuit):  The plaintiff in this case contended that: (1) he is entitled to more benefits than he was awarded under the defendant’s pension plan; and (2) ERISA allows him to sue a “de facto administrator” of the plan for failing to provide requested information. The court ruled as follows, however:

  • Under the applicable “arbitrary-and-capricious standard” of review, the defendant’s interpretation of the plan document language at issue was consistent with the plan’s unambiguous language, which makes clear that the plaintiff was not eligible for additional benefits.
  • Under ERISA, a plan administrator who fails or refuses to comply with a participant’s request for information which the administrator is legally-required to provide within 30 days is subject to a penalty that accrues each day the information is not provided. Here, the plaintiff asserted that an individual failed to respond to his document request within that 30-day period. The court stated that because such individual does not fit the statutory definition of “administrator,” the issue is whether he may be liable under ERISA as a de facto administrator. Stating that a majority of federal courts have rejected the de facto plan administrator theory, the court then opined that to treat as administrators those who do not fully satisfy the “administrator” definition would contravene ERISA’s plain text. “In short, we must restrict application of the title “administrator” to those who fit the statutory definition and not stretch the term to authorize penalties against others whom a disappointed plan participant might like to reach. That means that [the individual at issue] is not an administrator, “de facto” or otherwise.”

Brown-Davis v. Walgreen Co. (complaint filed on August 9, 2019 in the U.S. District Court for the Northern District of Illinois):  In this proposed class action case, the plaintiffs (participants in the defendant plan sponsor’s 401(k) plan) also named the plan’s committee and trustees as defendants. The plaintiffs allege that in 2013, the defendants “loaded the plan with a suite of poorly performing funds” and have kept those funds in the plan’s investment lineup for several years “despite their continued underperformance” and despite “a market teeming with better-performing alternatives…” (The funds at issue are target-date funds, which are designed to achieve certain investment results based on an investor’s anticipated retirement date.) The plaintiffs state that the plan “lost upwards of $300 million in retirement savings since 2014” because of the defendants’ “imprudent process for investigating, evaluating and monitoring investments” and resulting failure to remove those funds from the plan. The plaintiffs seek a recovery of those losses, plus their attorney’s fees.  

U.S. v. Maynard (decided on August 12, 2019 by the U.S. District Court for the District of Colorado):  The defendant in this case, who served as the CEO of two companies located in Denver, has been sentenced to 6 ½ years in federal prison for several legal violations. Those include stealing over $68,000 from one plan sponsor’s 401(k) plan and stealing over $50,000 from one plan sponsor’s health plan. Per the U.S. Attorney, “Thanks to the hard work of this office, the Department of Labor and IRS Criminal Investigation, the defendant will live in a small cell for over 6 years…”

Kinsinger v. SmartCore, LLC (decided on August 26, 2019 by the U.S. District Court for the Western District of North Carolina):  The plaintiffs here (a participant in the defendant small plan sponsor’s group health plan, and his dependent), also named the plan sponsor’s two executives as defendants. Under the plan’s terms, the defendants were required to pay benefits and administration expenses directly from the plan sponsor’s general assets, and the plan sponsor properly withheld wages from the plaintiff and other employees to cover certain plan costs. However, the defendants stopped paying plan premiums that were necessary to fund its benefits, and they used employees’ withholdings for other purposes. A dispute arose regarding one of the plaintiff’s surgeries, which the plaintiffs thought would be covered under the plan. In this connection, on June 7, 2016 the plaintiffs requested certain documents from the defendants (e.g., the plan document; all insurance policies and contracts). The defendants did not produce any of the requested documents until July 25, 2018, and that was in response to the plaintiffs’ discovery requests in this case. The court’s main conclusions were as follows:

  • The defendants breached their fiduciary duties when they failed to pay money withheld from participants’ paychecks to the plan and used the withheld contributions for other purposes. Thus, they are liable for the total amount of all monies so withheld.
  • The defendants violated ERISA by failing to timely produce requested documents, which can involve a penalty of up to $110.00 per day (in the court’s discretion). The court stated that the plaintiffs “were substantially prejudiced as a result of [the defendants’] failure to provide the requested documents,” and the defendants exhibited “bad faith” in this regard. The court also noted, however, that “the delay in receiving the documents at least partially stemmed from factors outside of [the defendants’] bad conduct…” Thus, the court imposed a rate of $55.00 per day, resulting in a total penalty of $41,140.

Montgomery v. H.E. Butt Grocery Co. (complaint filed on September 3, 2019 in the U.S. District Court for the Western District of Texas):  The plaintiffs in this proposed class action case, who are participants in the defendant plan sponsor’s 401(k) plan, have also named the plan’s committee as a defendant. The plaintiffs mainly assert that the defendants:

  • Failed to properly monitor and control the plan’s expenses, by their “use of high-cost investment products and managers…”
  • Failed to prudently monitor the expenses charged by the plan’s index funds in that those funds “charged fees that were up to seven times higher than comparable alternative index funds that tracked the exact same indexes…”
  • Breached their fiduciary duties by “utilizing an imprudent process to manage and monitor” the plan’s target-date funds. More specifically, the defendants allegedly utilized an inexperienced internal team to manage those funds, resulting in “fundamentally flawed asset allocations” and the inclusion of those funds despite their “high costs, speculative investment methodology, and ongoing poor performance.”
  • Failed to prudently consider alternatives to the plan’s money market fund, such as stable value funds.

The plaintiffs seek a court order requiring the defendants to “make good to the Plan all losses suffered as a result of Defendants’ fiduciary breaches,” as well as requiring the defendants to pay the plaintiffs’ attorneys’ fees.