September 2022 ERISA Litigation Update:

Given the continuing wave of ERISA litigation, this article has become a mainstay of The Speed Reader. A sample of recent cases is provided below. 

The most common type of ERISA case for approximately the past sixteen years has involved retirement plan participants’ allegations that plan fiduciaries caused participants to pay excessive recordkeeping and investment fees and included one or more poorly-performing investment options in the plan. Recent cases in this category include the following:

  • Albert v. Oshkosh Corporation (case dismissed on August 29, 2022 by the U.S. Court of Appeals for the Seventh Circuit)
  • Abel v. CMFG Life Insurance Company (complaint filed on August 19, 2022 in the U.S. District Court for the Western District of Wisconsin)
  • McDonald v. Laboratory Corporation of America Holdings (complaint filed on August 18, 2022 in the U.S. District Court for the Middle District of North Carolina)
  • Harris v. Swiss Re American Holding Corporation (complaint filed on August 18, 2022 in the U.S. District Court for the Southern District of New York) 
  • Gosse v. Dover Corporation (complaint filed on August 11, 2022 in the U.S. District Court for the Northern District of Illinois)
  • Krohnengold v. New York Life Insurance Company (procedural ruling issued on August 10, 2022 by the U.S. District Court for the Southern District of New York)
  • Anderson v. Advance Publications, Inc. (complaint filed on August 10, 2022 in the U.S. District Court for the Southern District of New York)

Other types of recent ERISA cases are as follows:

Gelschus v. Hogen (decided on August 29, 2022 by the U.S. Court of Appeals for the Eighth Circuit):  As part of Mr. and Mrs. Hogen’s divorce, Mrs. Hogen was awarded 100% of her 401(k) plan account. She then attempted to change her beneficiary designation form to remove Mr. Hogen as her beneficiary, but she submitted the form in an incomplete manner. The plan sponsor thus refused to make the beneficiary designation change and notified Mrs. Hogen several times of that fact. However, given that Mrs. Hogen took no further action, she died without having properly removed Mr. Hogen as her plan beneficiary. After her death, the plan sponsor paid her plan benefit to Mr. Hogen. The plaintiff, who is the personal representative of Mrs. Hogen’s estate, subsequently filed this lawsuit to try to recover that money for the estate.

The court began its analysis by citing the following language from the plan’s Summary Plan Description: “A…change of Beneficiary may be made by properly completing and submitting, prior to your death, a Beneficiary/Consent Designation Form…”

The court ruled that the plan sponsor rightly paid the 401(k) plan benefit at issue to Mr. Hogen because of ERISA’s “plan documents” rule. Under that rule, plan administrators must “discharge [their] duties . . . in accordance with the documents and instruments governing the plan.” The “documents and instruments” here included the Summary Plan Description and Mrs. Hogen’s original, proper beneficiary designation form naming Mr. Hogen as her sole beneficiary. The court then opined that “When [Mrs. Hogen] died, the only valid designation named [Mr. Hogen] as sole beneficiary. [The plan sponsor] did not abuse its discretion by following the Plan’s instructions to distribute benefits in accordance with that designation.” Therefore, the plan sponsor’s conduct did not constitute a breach of fiduciary duty under ERISA. 

Berkelhammer v. Automatic Data Processing, Inc. (procedural ruling issued on August 23, 2022 by the U.S. District Court for the District of New Jersey):  Although this case is typical of most ERISA litigation over the past sixteen years, in that the plaintiffs’ complaint addresses recordkeeping fees and certain investments’ performance, the complaint also includes a claim that has not been typical in these cases.

Namely, the plaintiffs allege that the plan sponsor of the multiple employer plan at issue permitted a plan service provider to use participant data to market and sell non-plan investment products to participants. The plaintiffs state that participants were harmed because “their data was made available to conflicted sales representatives who had access to their personal details, including at vulnerable times in their lives, such as contemplating rollovers or other major investment decisions, under the imprimatur of employer-sponsored Plan approval.” 

With respect to those participant-data claims, the court stated:

  • One district court has observed that there is not “a single case in which a court has held that releasing confidential information or allowing someone to use confidential information constitutes a breach of fiduciary duty under ERISA.”
  • The plaintiffs have not articulated any harm to the plan (i.e., diverted investments that would otherwise have increased plan assets).
  • The plaintiffs do not allege that the non-plan products at issue performed so poorly that those products’ fees were unjustified.
  • Based on the above, the plaintiffs’ fiduciary breach claim is dismissed, although the plaintiffs might be able to re-submit it to the court. In this regard, the court stated that it “cannot rule out the possibility that Plaintiffs might plausibly allege that a reasonable fiduciary in Defendants’ situation would have conditioned use of plan participant data only for recordkeeping purposes.”
  • As for the plaintiffs’ prohibited transactions claim, they must plausibly allege that participant data are plan assets. Whether something is a plan asset presents, in part, a question of law, so the plaintiffs “must do more than simply allege that plan participant data are plan assets.” Here, the court “could not uncover, and Plaintiffs have not cited, a single case that has held plan participant data are plan assets under ERISA. And at least three courts have squarely rejected such a proposition.”

Walsh v. Alight Solutions, LLC (procedural ruling issued on August 12, 2022 by the U.S. Court of Appeals for the Seventh Circuit):  This lawsuit, filed by the U.S. Department of Labor (“DOL”), stems from the DOL’s investigation of alleged cybersecurity breaches involving the defendant, which provides administrative services for healthcare and retirement plans. (The defendant’s clients provide the defendant with highly-sensitive information about their companies, employee benefits plans, and plan participants, so the defendant provides cybersecurity services to protect that information.) As part of its investigation, the DOL issued an administrative subpoena in order to obtain certain documents. The defendant produced some documents in response but objected to many of the subpoena’s requests, arguing that:

  • The subpoena is unenforceable because the DOL lacks authority to investigate the non-fiduciary defendant or cybersecurity incidents generally.
  • The subpoena’s demands are too indefinite and unduly burdensome.

With respect to the first bullet above, the court stated that “Whether or not Alight is a fiduciary does not affect the [DOL’s] investigatory authority.” That is because, under ERISA, the DOL has the power to launch investigations “in order to determine whether any person has violated or is about to violate any provision of [ERISA] or any regulation or order thereunder.” Thus, ERISA does not limit the DOL’s investigatory authority to fiduciaries. Also, Congress incorporated into ERISA “a standard of loyalty and a standard of care.” Therefore, the reasonableness of the defendant’s cybersecurity services, and the extent of any breaches, is relevant for determining whether ERISA has been violated (either by the defendant itself, or by any employers that outsourced management of their ERISA plans to the defendant).

As for the second bullet above, the court noted that the defendant has not argued that the subpoena is unclear, and the court ruled that the district court was correct to find that the subpoena’s terms are not too indefinite. Additionally, to determine whether a subpoena is unduly burdensome, the district court must “weigh the likely relevance of the requested material to the investigation against the burden to [the respondent] of producing the material.” The court noted that such analysis involves “a fact-intensive inquiry.” Here, the defendant “has not estimated the number of documents at issue or the cost of producing those documents” and made “conclusory allegations insufficient to establish an undue burden.” Thus, the district court properly granted the DOL’s petition to enforce the subpoena (with some modifications).