By: Jules Levenson and Mark Casciari

Seyfarth Synopsis: A district court in New York has held that a plaintiff cannot assert claims against a plan in which she did not participate and cannot assert claims of fiduciary breach without plausible allegations of wrongdoing.

A federal district judge in the Southern District of New York has dismissed claims that a stable value fund was depressing returns and pocketing the difference between the amount credited to the investments and the actual return on the investments. The decision is reported as Dezelan v. Voya Retirement Ins. & Annuity Co., No. 16-cv-1251 (S.D.N.Y. July 6, 2017).

The plaintiff participated in a separate-account stable value fund (with money segregated from Voya’s general accounts).  She sued on behalf of a class of participants in all of Voya’s ERISA-covered stable value funds in a multitude of employer-sponsored plans, including participants in non-segregated funds. The suit alleged that Voya violated its fiduciary duties and engaged in prohibited transactions by skimming money from the investments rather than allowing it to accrue to the plans.

Voya filed a motion to dismiss, which the Court granted without prejudice. On the general account claims, the court found that the plaintiff did not have standing to attack alleged violations in the general account funds because the she did not participate in the funds, and thus  had no redressable injury.  It also rejected plaintiff’s claims as to separate account plans because the claims turned on a showing that Voya improperly transferred assets between its segregated and general accounts. The Court lastly rejected holdings from other circuits that an ERISA participant may represent participants in other plans if the “gravamen” of the suit involves the same general practices across all plans.

On the merits of the separate account claims, the Court found that the complaint did not state a claim for breach of fiduciary duty because the complaint did not plausibly allege that Voya kept plan money, so there was no inference of misconduct. As to the prohibited transaction claims, the complaint did not allege, the Court said, that any improper transfers occurred,  and one could not be presumed because of opportunity.

The Court’s decision is important because it shows that, at least for some district judges, the Supreme Court’s Twombly plausibility standard continues to limit the ability of plaintiffs to sue for, and seek discovery on, alleged wrongdoing in plans in which they did not participate.  It is also important because it requires plaintiffs to carefully allege self-dealing facts.  That said, the decision has the potential to lead to piecemeal litigation, with a multiplicity of suits asserting similar claims. And note that the Dezelan case is far from over. On August 3, 2017, the plaintiff filed her amended complaint; an answer or new motion to dismiss is due September 18.

By: Ian Morrison and Tom Horan

Seyfarth Synopsis: In a strong decision for insurers, the Eighth Circuit affirmed summary judgment for the administrator, rejected plaintiff’s conflict of interest argument, and found that it was not arbitrary for the administrator to require objective evidence of impairment when processing an LTD claim.

Cooper v. Metropolitan Life Insurance Company, No 16-3429, 2017 WL 2853729 (8th Cir. July 5, 2017), is a fairly typical ERISA long-term disability case, but has unusually strong pro-insurer holdings. On appeal from a summary judgment win for MetLife, the Eight Circuit conclusively rejected the plaintiff’s claim that the insurer’s dual role as decisionmaker and payor of benefits warranted a closer review of its decision.

In support of the LTD claim at issue, plaintiff submitted documentation from both her treating physician and her chiropractor. MetLife found no clinical findings to support disability. Plaintiff did not formally appeal, but continued to correspond with MetLife and supplied additional notes from her treating physician. MetLife referred those records, as well as the records from previous STD and LTD claims, to an independent physician for review. The reviewing physician found no objective clinical support for the conclusion that plaintiff was disabled as defined in the plan.

On appeal, the plaintiff argued that the district court erred in applying the abuse of discretion standard and refusing to consider affidavits from her treating physician and chiropractor that were outside the administrative record. The court rejected plaintiff’s argument that MetLife’s dual role warranted more searching review. The court noted that plaintiff’s generic claim of conflict was devoid of evidence of biased decision making. Instead, the court found that the record evinced a comprehensive review, including reliance on the opinion of a qualified independent expert, and did not require a “less deferential” review under the U.S. Supreme Court’s decision in Metropolitan Life Insurance Co. v. Glenn, 554 U.S. 105 (2008).

The Eighth Circuit also found it permissible for the insurer to rely on the opinion of its retained physician instead of the competing views of a treating physician, especially where the plaintiff was given repeated notice of the type of evidence missing from her physician’s submissions. In reaching its conclusion, the court rejected the oft-heard argument that it was arbitrary to insist upon objective evidence of impairment. The court stated that that MetLife was entitled to favor the reviewing physician’s opinion over that of plaintiff’s treating physician—particularly where the treating physician was not tasked with interpreting “disability” as defined in the plan—so long as the reviewing physician’s conclusion was a reasonable one to draw from the record. Finally, the court rejected plaintiff’s argument that MetLife violated the ERISA claims regulations by having a nurse with unspecified credentials interpret certain lab tests, reasoning that MetLife was in substantial compliance with the claim regulations and that there was no evidence that having a different professional review the tests would have changed the outcome.

Cooper will become a go to case for insurers and other benefit plan administrators to cite in their summary judgment briefs, at least as to its “objective evidence” and conflict holdings.  The court’s “substantial compliance” holding, however, may not survive the implementation of the revised DOL claim regulations.

 

By Michelle Scannell and Mark Casciari

Seyfarth Synopsis: The Supreme Court appears to have barred equitable tolling under ERISA Section 413’s six-year statute of repose for fiduciary breach claims, subject only to well-pled allegations and proof of fraud or concealment.

Statutes of repose begin to run after a defendant’s last culpable act or omission–regardless of when a plaintiff is injured—and give defendants a complete defense to any lawsuit commenced after the repose limitations period. ERISA Section 413 provides a six-year statute of repose for fiduciary breach claims, with a narrow exception, “in the case of fraud or concealment.” If the exception applies, the claim may be brought within six years of discovery of the breach.

The Supreme Court recently shut down the argument that the tolling doctrine in American Pipe & Construction Company v. Utah, 414 U.S. 538 (1974) applies to an unconditional statute of repose.  The American Pipe rule allows the equitable tolling of individual claims during the pendency of a class action until class certification is denied or the individual is no longer part of the class.  So the equitable tolling doctrine allows courts to extend limitations periods beyond the limitations period set forth by Congress, and creates substantial uncertainty for defendants.

In California Public Employees Retirement Sys. (CALPERS) v. ANZ Securities, Inc., No. 16-373 (June 26, 2017), the Court dismissed as untimely a securities case filed by CALPERS after the statute of repose expired.  CALPERS argued that the lawsuit was timely because the same claim was timely asserted in another securities class action that CALPERS opted out of after filing its own case.  The Court rejected the CALPERS argument that the timely filing of the class action equitably tolled statute of repose for its individual case.

The Supreme Court said that unconditional statutes of repose may not be tolled under any circumstances. The Court said that statutes of repose reflect a legislative intent to protect defendants from an “interminable threat of liability,” which displaces the traditional power of courts to modify statutory time limits based on equitable doctrines, including the one applied in American Pipe. Statutes of repose, the Court stated, offer “full and final security after” the repose period expires.

By direct analogy, the CALPERS decision should apply to the ERISA Section 413 statute of repose, with one caveat.

Section 413, unlike the securities limitation statute at issue in CALPERS, is not unconditional.  Its “fraud or concealment” exception, as the Supreme Court noted in CALPERS, “demonstrates the requisite intent to alter the operation of the statutory period.”

ERISA fiduciaries therefore still face indeterminate liability in cases of alleged fraud or concealment. But it is difficult for plaintiffs to allege, let alone prove, fiduciary fraud or concealment.  Strict pleading standards dictated under Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), may provide fiduciaries with a strong motion to dismiss argument that, if successful, could provide a quick win, and obviate the need to expend substantial time and money associated with the rigors of discovery.

The CALPERS decision is good for fiduciaries sued on claims accruing more than six years before a suit is filed. CALPERS removes equitable tolling from the arsenal of plaintiff arguments, leaving only the much harder “fraud or concealment” argument to revive what otherwise would appear to be a stale case.

 

By Sam Schwartz-Fenwick and Michael W. Stevens

Seyfarth Synopsis: The Texas Supreme Court held that the U.S. Supreme Court’s landmark marriage equality decision, Obergefell v. Hodges, did not dispositively address how far government employers must go in providing benefits to same-sex married couples.

In a provocative opinion, in Pidgeon v. Turner, No. 15-0688, the Texas Supreme Court held that Obergefell v. Hodges, 135 S. Ct. 2584 (2015), does not necessarily require state governments to extend marital benefits to same-sex married couples.

Procedural Background

In 2013, the city of Houston began extending benefits to same-sex spouses of city employees who were lawfully married. Shortly thereafter, Pidgeon was filed. It alleged that the city’s actions violated Texas and Houston law. The law was enjoined by a state court. In July 2015, the Texas court of appeals reversed the injunction, holding that Obergefell represented a “substantial change in the law regarding same-sex marriage since the temporary injunction was signed,” and that Obergefell forbade states from refusing to recognize lawful same-sex marriages.  The appeals court also remanded to the trial court to issue opinions “consistent with” Obergefell . Plaintiffs then appealed to the Texas Supreme Court.

The Court’s Opinion

The Texas Supreme Court reversed. The Court wrote “The [U.S.] Supreme Court held in Obergefell that the Constitution requires states to license and recognize same-sex marriages to the same extent that they license and recognize opposite-sex marriages, but it did not hold that states must provide the same publicly funded benefits to all married persons.”  Slip op. at 19 (emphasis added). The Texas Supreme Court remanded the case, so the trial court could decide if the Constitution or Obergefell “requires citizens to support same-sex marriages with their tax dollars.” Id. at 20.

The decision rested on the proposition that Obergefell is “not the end” of the inquiry as to the “reach and ramifications” of the constitutional status of same-sex marriage. Id. at 23.  Notably, the Texas Supreme Court acknowledged that the U.S. Supreme Court had, in the same week, decided Pavan v. Smith, No. 16-992, which rejected the state of Arkansas’ efforts to limit recognition of same-sex parents on birth certificates.  In Pavan, in a per curiam opinion, the Court held that same-sex couples are entitled to the same “constellation of benefits that the Stat[e] ha[s] linked to marriage.”  2017 WL 2722472, at *2 (citations omitted).

Despite the apparent inconsistency with Pavan, the Texas Supreme Court emphasized the purported uncertainty over the reach of same-sex marital benefits by noting that the U.S. Supreme Court has also granted certiorari in Masterpiece Cakeshop, Ltd. v. Colo. Civil Rights Comm’n, No. 16-111, a case involving a baker who was sued after he refused to make a wedding cake for a same-sex wedding.

Next Steps

The trial court may now proceed to the merits of the case, and a ruling that is inconsistent with Obergefell and Pavan is a distinct possibility.  Should the case ultimately proceed to the U.S. Supreme Court, in light of Pavan, and assuming the current membership of the Court remains the same, it seems unlikely that a narrow reading of Obergefell, at least as to governmental actors, would be upheld.  Unlike Masterpiece Cakeshop, Ltd., Pidgeon does not raise any questions of freedom of speech or religious liberty.  Rather, as with Pavan and Obergefell, it addresses whether state actors can treat same-sex marriages differently than opposite sex marriage.

While the decision in Pidgeon may ultimately be vacated, that this decision was issued 2-years after a ruling by the Supreme Court legalizing same-sex marriage, underscores that opponents of marriage equality continue to use courts as a vehicle to limit or reverse marriage equality.

As Pidgeon and other challenges to marriage equality make their way through the courts, employers and benefit plans considering modifying their benefit offerings to exclude same-sex spouses should tread very carefully, especially given the EEOC’s position that differential benefit offerings to same-sex spouses violates Title VII of the Civil Rights Act.

By: Mark Casciari and Jules Levenson 

Seyfarth Synopsis: The Supreme Court has held unanimously that a 1980 amendment to ERISA means that a pension benefit plan need not be established by a church in order to be exempt from ERISA rules, including most importantly, its funding rules.  The decision shows that most courts misread ERISA, which is not that surprising, given the statute’s complexity.

On June 5, 2017, the Supreme Court unanimously held that a pension benefits plan need not be established by a church in order to qualify as a church plan exempt from ERISA funding and other rules, reversing three Courts of Appeal decisions to the contrary. Advocate Health Network v. Stapleton, No. 16-74 — S. Ct. — (June 5, 2017).

Stapleton involved pension plans established by nonprofit hospitals allegedly affiliated with churches.  The original ERISA definition of church plan required that the plan be “established and maintained . . . by a church,” but a 1980 amendment defined the phrase “established and maintained . . . by a church” to include plans maintained by certain affiliate organizations.  The question before the Court was whether a plan qualified as a church plan simply by virtue of its being maintained by a qualifying affiliate organization (referred to by the Court as a “principal purpose organization”) — the position taken by the hospitals — or whether a church must first have established the plan — the position taken by the plaintiffs.

In an opinion sure to delight enthusiasts of textualism, Justice Kagan, writing for a unanimous court (absent Justice Gorsuch), sided with the hospitals. The Court concluded that Congress’s amendment to ERISA brought plans maintained by principal purpose organizations into the exempt category of plans “established and maintained . . . by a church,” even if those plans were not in fact initially established by church. The Court also noted that that the IRS, DOL, and PBGC had long interpreted ERISA to exempt these plans.

This decision is a significant victory for church-affiliated healthcare organizations that have not already settled for tens and even hundreds of millions of dollars with the plaintiff attorneys and the classes they represent. The settlements attempted to bridge the funding shortfalls if those plans were subject to stringent ERISA funding rules. The decision thus rewards those employers who took a hard line against Courts of Appeals decisions.  It also is yet another lesson that one can never be too careful interpreting ERISA, and sometimes the correct interpretation runs counter to many lower court decisions and the admonitions of strident plaintiff counsel.

We have written previously about how this case might affect ERISA litigation.  We thought the Court might comment on the U.S. Constitution’s “concrete injury” precondition to suit in federal court under ERISA, in the context of an ERISA violation that is limited to technical statutory compliance.  The Court did not, however.  Instead, the Court offered a lesson on how to interpret a highly complex statute.

By: Sam Schwartz-Fenwick and Chris Busey

Seyfarth Synopsis: The Eighth Circuit upheld dismissal of Title VII claims challenging an employee benefit plan’s blanket transgender exclusion because the exclusion impacted the  employee’s transgender son, not the employee. The Eight Circuit overturned the dismissal of the employee’s claim against the plan’s third-party administrator under the Affordable Care Act, finding the complaint sufficiently alleged an actionable claim against the TPA.

The Eighth Circuit granted a potentially short-lived reprieve to a plaintiff challenging a blanket exclusion for transgender services contained in her employer’s health plan. The case, Tovar v. Essentia Health, et al, No. 16-3186 (8th Cir. May 24, 2017), allowed part of the plaintiff’s claim alleging a violation under Section 1557 of the ACA to proceed by remanding it to the district court.

The Section 1557 regulations at issue in Tovar are currently subject to a nationwide injunction issued in the Northern District of Texas. The Department of Health and Human Services is party in that suit, and has indicated that it may seek to repeal that regulation through the typical notice and comment rulemaking procedures. The Circuit Court did not address the precarious nature of Section 1557 in its decision.

Rather, the Eighth Circuit restricted its analysis to the decision of the district court. The District Court dismissed Tovar’s claims under Title VII, the Minnesota Human Rights Act, and Section 1557, as we covered here.

The Eighth Circuit first upheld the dismissal of Tovar’s Title VII and MHRA claims. It agreed that Tovar was not within the class of individuals protected by those statutes because she did not allege discrimination based on her own sex, but that of her transgender son.

The Court went on to overturn the dismissal of the ACA claim against the TPA. The District Court had dismissed her ACA claims for lack of Article III standing because Tovar named the wrong entity and because only the employer (not the TPA) had the ability to modify plan terms (such as the transgender exclusion). The Eighth Circuit found the plan documents did not definitively establish that the named defendant had no involvement in the administration of the plan. The Eighth Circuit further found that Plaintiff alleged sufficient facts showing that the “allegedly discriminatory terms originated” with the TPA. And thus this issue was remanded to the district court.

The Eighth Circuit specifically declined to address the argument that an administrator could not be liable for administering a plan where plan design is under the sole control of another organization. The dissent forcefully addressed this question, noting that an Office of Civil Rights interpretation of Section 1557 provides that “third party administrators are generally not responsible for the benefit design of the self-insured plans they administer and ERISA . . . requires plans to be administered consistent with their terms.”

By: Sam Schwartz-Fenwick and Jules Levenson

Seyfarth Synopsis: In a decision with wide ranging implications, the Ninth Circuit has ruled that a discretionary clause in an employer drafted plan document is subject to, and invalidated by, California’s insurance regulation banning discretionary clauses in insured plans.

In recent years a number of states have passed insurance regulations barring discretionary clauses in disability insurance policies in order to make it easier for participants to prevail on ERISA claims. A question that has dogged these regulations is the extent to which they are preempted by ERISA.  One particularly strong argument raised by employers is that even if a state insurance regulation can control an insurer-drafted plan document, basic principles of ERISA preemption preclude state law from invalidating any provision in an employer plan document.

The Ninth Circuit has now weighed in on this issue and in a victory for plaintiff, the Court of Appeals held that a state discretionary ban is not preempted by ERISA and properly extends to employer-drafted plans as long as the plan provides for insured benefits. Orzechowski v. Boeing Co. Non-Union Long Term Disab. Plan, No. 14-55919, ‑‑ F.3d –, 2017 WL 1947883 (9th Cir. May 11, 2017).

Orzechowski involved a denial of disability benefits. Defendant argued that the claim was subject to the highly deferential abuse of discretion review, as the employer drafted plan conferred discretion on the insurer (claim administrator) to decide claim.  The district court agreed. The district court further found that because the plan was in effect prior to the enactment of California’s discretionary clause ban, it was not covered by the ban.

The Court of Appeals reversed. The Court found the plan subject to the ban, because although the plan was in effect prior to the ban’s enactment, Plaintiff claimed benefits under an insurance policy that renewed (as defined by the statute) after the statute’s effective date.  Examining whether the plan was preempted by ERISA, the Court found that even though Boeing is not an insurance company, the law was directed to the insurance industry and, because the benefit at issuewas an insured benefit, all plan documents covering this benefit were subject to California state insurance regulations (including the discretionary ban).  Accordingly, the Court found the law valid as a regulation of insurance.  It thus remanded the claim for consideration under the de novo standard.

This case will likely have significant repercussions for plans in the context of benefits decisions, both in California and nationally. Absent reversal by an en banc panel of the Supreme Court, Not only will a significant number of decisions now be subject to de novo review in states in the Ninth Circuit, states considering banning discretionary clauses may be emboldened or spurred to action by this decision.  With fewer decisions afforded deference, a concomitant rise in litigation challenging benefits decisions is likely to follow.  Only time will reveal the exact extent of the impact.  Stay tuned.

 

By, Sam Schwartz-Fenwick and Jim Goodfellow

Seyfarth Synopsis: In an opinion that may result in increasingly complex ERISA benefits litigation, the Eighth Circuit has allowed a breach of fiduciary duty claim premised on alleged faulty claims handling practices to proceed in conjunction with a claim for benefits.

In a case that should catch the attention of ERISA plan administrators, the Eighth Circuit in Jones v. Aetna Life Insurance Company, et al held that a breach of fiduciary duty claim premised on improper claims handling could survive a motion to dismiss, even where the plaintiff also brought a claim for benefits seeking the same unpaid benefits.

In Jones, Plaintiff brought two claims against insurer Aetna: 1) a claim for benefits premised on Aetna’s termination of Plaintiff’s disability benefit; and 2) a breach of fiduciary duty claim premised on Aetna’s claims handling practices. The district court dismissed the breach of fiduciary duty claim as duplicative of the claim for benefits, citing the Supreme Court’s decision in Varity Corp. v Howe, 516 U.S. 489 (1996), which instructed that section 502(a)(3) breach of fiduciary duty claims function as a “safety net, offering appropriate equitable relief for injuries caused by violations that § 502 does not elsewhere adequately remedy.”  On summary judgment, the court held that Aetna did not abuse its discretion in denying the claim for benefits.

On appeal, the Eighth Circuit affirmed the denial of benefits. But, the Eighth Circuit reversed the dismissal of the breach of fiduciary duty claim. The court found it was consistent with Varity Corp to allow a fiduciary breach claim to proceed in tandem with a claim for benefits so long as both claims set forth a different theory of relief. The court found that Plaintiff had made this showing, as “[e]ven if an administrator made a decision with procedural irregularities that seriously breach its duties to its beneficiary, it is not necessarily liable under (a)(1)(B); instead, the serious breach prompts a more searching review of the denial of benefits claim.” The Eighth Circuit remanded the breach of fiduciary duty claim for further proceedings.

This decision stands in sharp contrast to the Sixth Circuit’s en banc decision in Rochow v. Life Insurance Company of North America, 780 F.3d 364 (6th Cir. 2015), and with Varity Corp. and its progeny. In Rochow, the Sixth Circuit held that because the plaintiff could be made whole by the remedies available under section 502(a)(1)(B) and section 502(g) through payment of benefits, interest, and attorney’s fees, the plaintiff could not recover under section 502(a)(3). Given how out of step Jones is with longstanding practice, it is likely that Aetna will seek en banc review, or even file a petition of certiorari with the Supreme Court. Nevertheless, while this case continues to work its way through the courts, it is likely that plaintiffs will rely on Jones in justifying pairing routine claims for benefits with claims for equitable relief.

An upsurge in such litigation, while in the short-run potentially advantageous to participants who will be able to obtain extra-contractual equitable remedies (such as sur-charge and disgorgement), risks in the long run causing insurers to greatly raise premiums to address high litigation costs. This in turn risks chilling the willingness of employers to offer ERISA disability benefits to their employees. Stay tuned for how this case plays out, either on further appeal or in future cases.

By: Jim Goodfellow and Ian Morrison

Seyfarth Synopsis: The Fifth Circuit has concluded that Texas’ ban on discretionary language in insurance policies does not alter the standard of review related factual determinations made by ERISA administrators. In so holding, the Court has suggested that Texas’ ban on discretionary language does not apply to non-insurance policy plan documents, which could create a circuit split on this issue.

In Ariana M. v. Humana Health Plan of Texas, Inc., No. 16-20174 (5th Cir. Apr. 21, 2017), the Firth Circuit concluded that Texas’ ban on discretionary clauses in certain insurance policies did not require a de novo review of the defendant administrator’s factual determinations in an ERISA claim for benefits.

In the Fifth Circuit, an ERISA administrator’s factual conclusions are reviewed for an abuse of discretion regardless of whether the plan contains Firestone discretionary language. See, e.g., Green v. Life Ins. Co. of N. Am., 754 F.3d 324, 329 (5th Cir. 2014) (noting that the standard of review for factual determinations is abuse of discretion regardless of the presence of a discretionary clause); Dutka ex rel. Estate of T.M. v. AIG Life Ins. Co., 573 F.3d 210, 212 (5th Cir. 2009) (“with or without a discretion[ary] clause, a district court rejects an administrator’s factual determinations in the course of a benefits review only upon the showing of an abuse of discretion.”).

Texas has enacted a ban on discretionary language in insurance policies: Texas Insurance Code Section 1701.062(a). In Ariana, the plaintiff argued that this ban precludes deference to and mandates a de novo review of the administrator’s factual findings. The Fifth Circuit rejected this argument, stating that “[t]he plain text of [Section 1701.062(a)] provides only that a discretionary clause cannot be written into an insurance policy; it does not mandate a standard of review.” Thus, “[Section 1701.062(a)], by its terms, does not mandate a standard of review.” Instead, it provides only that an insurer “may not use a document if the document contains a discretionary clause.” The Fifth Circuit interpreted Section 1701.062(a) to mandates what language can and cannot be put into an insurance contract in Texas, but stated that “[i]t does not mandate a specific standard of review for insurance claims.”

This decision preserves the abuse of discretion review of factual findings, but also suggests that the Fifth Circuit would find that Texas’ discretionary ban does not apply to non-insurance policy plan documents, and does not apply to insurance policies issued in states other than Texas.

By: Michael Stevens and Ronald Kramer

Seyfarth Synopsis:  The Sixth Circuit becomes the seventh circuit court to not require administrative exhaustion for statutory ERISA claims (as opposed to denial of benefit claims), while two circuit courts still do.

In a decision earlier this month, the Sixth Circuit joined six other circuit courts in holding that ERISA claims that seek vindication of statutory ERISA rights pertaining to the legality of a plan amendment, as opposed to an interpretation of the plan, are not subject to administrative exhaustion requirements.  The Sixth Circuit joined the Third, Fourth, Fifth, Ninth, Tenth, and D.C. Circuits in so holding, while the Seventh and Eleventh Circuits require administrative exhaustion even where plaintiffs assert statutory rights.

In Hitchcock v. Cumberland University 403(b) DC Plan, No. 16-5942, — F.3d —-, 2017 WL 971790 (6th Cir. Mar. 14, 2017), Plaintiffs, participants in the Defendant University’s defined contribution pension plan, challenged a retroactive amendment pertaining to matching contributions.  In 2009, the University added a five percent matching contribution, and amended the summary plan description to define the match.  However, in October 2014, the University amended the plan to replace the five percent match with a discretionary match, and retroactively made the match for the 2013-14 year zero percent.  In May 2014, the University had announced that the match for the 2014-15 year would also be zero percent.

In November 2015, Plaintiffs filed suit on a purported class basis bringing four counts:  wrongful denial of benefits under 29 U.S.C. § 1131(a)(1)(B), an anti-cutback violation under 29 U.S.C. § 1054(g), failure to provide notice under 29 U.S.C. § 1132(a)(3), and breach of fiduciary duty under 29 U.S.C. § 1104.

Defendants ultimately filed a motion to dismiss (which was converted to a motion for judgment on the pleadings), which in relevant part asserted that Plaintiffs had failed to administratively exhaust their anti-cutback and breach of fiduciary duty claims.  The district court granted the motion, finding that Plaintiffs had failed to exhaust their administrative remedies.  Plaintiffs appealed.

The Sixth Circuit reversed, holding that Plaintiffs’ claim challenged the “legality of the Plan amendment . . . [not] the calculation of their benefits.”  The district court improperly construed Plaintiffs’ claims, because the “resulting benefits are not the gravamen of Plaintiffs’ challenge. . . . It is a serious mischaracterization to simply say that because the denial of benefits claim and the statutory ERISA claims result in the same monetary sum, all must constitute denial of benefits claims.  Our precedent indicates that administrative exhaustion is a futile requirement for statutory ERISA claims that challenge the legality of a plan amendment.” (Emphasis added.)

The Court cautioned that “plan-based claims ‘artfully dressed in statutory clothing,’ such as where a plaintiff seeks to avoid the exhaustion requirement by recharacterizing a claim for benefits as a claim for breach of fiduciary duty” are still subject to administrative exhaustion.  The touchstone is what forms the basis for the right to relief:  “[T]he contractual terms of the pension plan or the provisions of ERISA and its regulations. . . The rights Plaintiffs assert—the right to receive accrued benefits which have not been decreased by an illegal amendment, and the right to have a fiduciary discharge his or her duties in accordance with the statute—are granted to them by ERISA, not by the Plan’s contractual terms.  Thus, Plaintiffs assert statutory claims, which are not subject to the exhaustion requirement.”

With the majority of circuits now firmly holding that exhaustion is not required for statutory claims, it is unclear whether Hitchcock is a likely vehicle for the Supreme Court to resolve the dispute.  In the meantime, plan defendants seeking to require administrative exhaustion must make their best efforts to characterize plaintiffs’ claims as challenges to plan terms or benefits determinations, rather than seeking vindication of statutory rights under ERISA.