ERISA & Employee Benefits Litigation Blog

Judge To The State’s Defense of the Illinois Pension Reform Law: NO DICE

Posted in Uncategorized

By Ron Kramer and Jim Goodfellow

Today, a Sangamon County Circuit Court judge in In re: Pension Litigation, struck down Illinois’ pension reform law, Public Act 98-059, in its entirety as unconstitutional.

By way of background, Illinois faces a pension funding crisis that has been reported at over $100 billion dollars.  The aim of the pension reform law was to save the state $160 billion over the next 30 years by decreasing cost-of-living adjustments, capping pensionable salaries, and raising retirement ages, among other reforms. The law was set to go into effect on June 1, but implementation had been stayed pending the outcome of this litigation.

The Court concluded that the pension reform law impaired and diminished retiree benefits in violation of Article XIII, Section 5 of the Illinois Constitution, which clearly and unambiguously prohibits the impairment or diminishment of retiree benefits.  The Court struck down the State’s affirmative defense claims that it could diminish benefits despite the Article XIII of the Constitution based upon an exercise of the State’s “reserved sovereign powers or police powers.”  There was “no such legally valid defense” according to the Court,  because the pension protection clause of the Constitution does not provide for any such exception or limitation. In light of this conclusion, the Court did not even need to address the merits of the State’s defense.

In essence, the Court followed the rationale set forth in the Illinois Supreme Court’s recent decision in Kanerva v. Weems, 2014 IL 115811, wherein the Supreme Court concluded that the Illinois Constitution’s pension protection clause protects the state’s subsidization of health insurance for retirees from any unilateral diminishment and impairment. Undeterred, the Governor and Attorney General have stated that they will move for an immediate appeal of the In re: Pension Litigation decision to the Supreme Court. Given the Supreme Court’s ruling in Kanerva, however, it is unlikely that this decision will be overturned on appeal.

More Uncertainty on Health Care Reform — Supreme Court to Hear Challenge to Premium Tax Credits in Federal Exchanges

Posted in Uncategorized

By Mark Casciari and Ben Conley

As we suggested might happen, the Supreme Court has granted certiorari in King v. Burwell.  The core of this case, as copious press reports have noted, is whether the Affordable Care Act’s limitation of premium tax credits to exchanges “established by the State” was sloppy drafting or an intentional effort to limit tax credits to those states that choose to establish their own exchanges/marketplaces (as opposed to deferring to the federal government).

In light of the pending Supreme Court review, as press reports have noted, the D.C. Circuit has removed from its calendar the en banc rehearing of the like case of Halbig v. Burwell.  The government is asking the 10th Circuit to delay its hearing of Pruitt v. Burwell, another case presenting the same issue.

Some have speculated that the Supreme Court’s decision to address the tax credit issue prior to the D.C. Circuit’s en banc rehearing is an indication that the Court intends to strike down subsidies on federal exchanges.  If the Supreme Court waited for the D.C. Circuit to act first, it would have made Supreme Court review less likely (unless the 10th Circuit in Pruitt found for plaintiffs in the interim).  We won’t know for certain what is on the Supreme Court’s collective mind until, most likely, the end of June 2015.

In the meantime, the Supreme Court is adding to health law uncertainty for consumers, just as the 2015 open enrollment period commences.  We will continue to monitor and post regarding further developments.

Sixth Circuit Baits Supreme Court To Decide Constitutionality of Same-Sex Marriage Bans

Posted in Uncategorized

By: Sam Schwartz-Fenwick, Ian H. Morrison and Jules Levenson

It has been slightly over a year since the Supreme Court invalidated Section 3 of the Defense of Marriage Act (“DOMA”) in United States v. Windsor, thus allowing same-sex spouses who were legally married to receive the federal rights and benefits of marriage.  Left unanswered by Windsor was the constitutionality of Section 2 of DOMA.  Section 2 says that states do not have to extend the benefits of marriage to same-sex couples or to recognize same-sex marriages lawfully entered into in other jurisdictions.

Since Windsor, 47 state and federal trial courts have struck down state bans on same-sex marriage.  The courts have relied on the due process clause of the 5th Amendment and the equal protection clause of the 14th Amendment.  Four federal circuit courts (the 4th, 7th, 9th and 10th Circuits) presented with the same question all agreed that the same-sex marriage bans were unconstitutional.  On October 6, 2014, the Supreme Court rejected petitions to hear these cases.  Overnight the number of states with same-sex marriage increased, or was expected to increase shortly thereafter, to 35.  Proponents of same-sex marriage including former U.S. Solicitor General Ted Olson argued that the battle for same-sex marriage had been won.  See Ted Olson: SCOTUS Has Passed The ‘Point Of No Return’ On Gay Marriage.”

On November 6, however, a divided panel of the Sixth Circuit Court of Appeals, in DeBoer v. Snyder, interrupted this pre-mature victory lap.  In DeBoer, the Sixth Circuit upheld same-sex marriage bans in Kentucky, Michigan, Ohio, and Tennessee. The majority held that it was bound by the Supreme Court’s one sentence ruling from the 1971 case Baker v. Nelson.  In Baker, the Court held that it lacked jurisdiction to decide the constitutionality of same-sex marriageThe Sixth Circuit went on to find that marriage was an issue for states to define for themselves.  It suggested that it was only a matter of time until all states legalized same-sex marriage, and held that courts should not interfere with the democratic process by which the states might reach this result.  The court also found same-sex marriage bans to be rational (hence, constitutional) because they merely codified society’s definition of marriage, a definition which had existed (according to the court) for thousands of years.

In a strongly worded dissent, Judge Martha Craig Daugherty accused the majority of composing an “engrossing TED Talk” on political philosophy, but failing to actually deal with the constitutional question in the case.  The dissent attacked the “wait and see” approach espoused by the majority, noting that advocates of judicial restraint were almost always opponents of expanded constitutional rights.  In addition, the dissent cited approvingly the decisions striking down same-sex marriage bans.  The dissent found that no rational basis exists to maintain the bans, and thus concluded that if the judiciary does not have the authority and responsibility to right fundamental wrongs, the Constitutional system of checks and balances would “prove to be nothing but a sham.”

It is possible that the entire Sixth Circuit will rehear this case and reach a different conclusion.  However, it is equally plausible is that this decision will be appealed directly to the Supreme Court thus forcing the Court to address the Constitutionality of state same-sex marriage bans.  Any ruling by the Court would have significant consequences for benefit plans and employers that currently operate in states without same-sex marriage given the number of benefit plan provisions that turn on marital status.

What’s more, a Supreme Court ruling on this issue would likely turn on the equal protection clause of the 14th Amendment, and would potentially signal greater (or lesser) protection for the LGBT community, generally.  For example, a ruling would affect how courts address claims of LGBT discrimination predicated on Title VII and other anti-discrimination statutes.  A loss for proponents of same-sex marriage would at the least slow judicial efforts to broaden the reach of Title VII and other anti-discrimination statutes to include LGBT discrimination.  In contrast, a decision in favor of same-sex marriage would increase the willingness of at least some courts to hold that Title VII and other anti-discrimination statutes cover LGBT discrimination. See e.g. Terveer v. Billington, No. 12-1290 (CKK), 2014 WL 1280301, at *9 (D.D.C. Mar. 31, 2014) (allowing claim of sexual orientation to proceed under Title VII).

Employee benefit plan sponsors need to continue to follow these developments because, the plaintiffs’ bar has been actively attacking plan limitations on benefits for same-sex spouses, and depending on the outcome of this litigation sponsors may need to amend multiple plans provisions that relate to marital status.

EEOC Doubles Down—Attacking Employer Wellness Programs

Posted in Uncategorized

By Mark Casciari, Ben Conley and James Napoli

In its third lawsuit in as many months, the EEOC requested a temporary restraining order against the Honeywell International Inc. wellness program.  The EEOC alleged that the program violates the Americans with Disabilities Act (ADA) and the Genetic Information Nondiscrimination Act (GINA).  Honeywell’s wellness program appears to fall squarely within the legal parameters of HIPAA (as amended by the Affordable Care Act), the ADA and arguably GINA (and Honeywell has released a statement to this effect).  All three actions are commenced by the Chicago office of the EEOC.  This alert focuses on the Honeywell case; for a discussion of the two cases see our earlier blog post.

The EEOC alleges that Honeywell’s wellness program violates the ADA because the penalties for failure to participate render the program “involuntary.”  The EEOC alleges that the penalties could amount to $4,000 annually (depending on whether the individual has enrolled in self-only or family coverage).[1]  The EEOC alleges that half of this amount is a smoker surcharge (HIPAA “health-contingent” wellness), and the remainder results from failure to participate in the biometric screening (HIPAA “participation-only” wellness).

The EEOC also alleges that Honeywell’s wellness program violates GINA, because it offers employees an incentive to provide family medical history in connection with a wellness program.  According to the EEOC, Honeywell contributes to employee health savings accounts (HSAs) if the employee and his/her spouse go through the biometric screening, but it imposes a $1,000 surcharge if they do not.  Under GINA, genetic information includes information relating to a manifestation of a disease or disorder in family members.  The statute defines “family member” to include spouses, even though spouses are not genetically related.

On November 3, 2014, the district judge denied the EEOC’s request for a temporary restraining order.  The case now reverts back to the administrative charging process pursuant to which the EEOC will investigate the alleged unlawful practices and attempt to conciliate the matter.

The court action taken by the EEOC raises a number of issues that may be resolved during the administrative process or in subsequent litigation.  Some of the more pertinent issues raised in the EEOC v. Honeywell case include:

1.  It appears that the program falls squarely within the parameters of the HIPAA nondiscrimination requirements (as amended by the Affordable Care Act).

Question Presented:  Is HIPAA compliance a safe harbor from ADA litigation?

2.  As noted in our earlier post, the ADA contains a safe harbor for wellness programs that are part of a bona fide benefit plan.  The Court of Appeals for the Eleventh Circuit, in Seff v. Broward County, 691 F.3d 1221 (11th Cir. 2012), relied on the ADA safe harbor to uphold a “participation-only” wellness program.  The EEOC now argues that ’s memorandum of law argues the Seff decision was misguided and inconsistent with the legislative history and purpose of the safe harbor provision.

Question Presented:  Does the ADA benefit plan safe harbor have the meaning afforded to it by the Eleventh Circuit?

3.   The EEOC has staked out a hyper-overly technical stance on GINA that goes far beyond the abuses GINA was intended to guard against.  No genetic information (in the literal sense) can be gleaned from combining the medical information of an employee and his or her spouse (i.e., the combined medical information does not equate to “family medical history”).  Moreover, the employer in this instance does not have access to the specific medical information being collected under the wellness program.

Question Presented:  Can GINA be used to undermine HIPAA-compliant wellness programs?

4.  The EEOC’s actions in this case fall outside of its regulatory mandate.  Guidance is to be issued by the Congressionally confirmed Commissioners and not from an EEOC litigator in a field office.  If the EEOC continues down this path, employers will be left with a patchwork of case law that will not guarantee a uniform system of rules and regulations as is envisioned under the EEOC’s charter and required with respect to all benefit programs.

We will continue to monitor developments in EEOC v. Honeywell as well as the fallout caused by the case that is already beginning to be felt in the nation’s capital.


[1] It should be noted that the facts recited in this blog are taken from the EEOC’s court filing, and may not be entirely accurate.

Sixth Circuit “Unfriends” DOL: No “Regulation By Amicus” For ERISA Venue Selection Clauses

Posted in Uncategorized

By: Kathleen Cahill Slaught and Michelle M. Scannell

Sixth Circuit judges might not expect holiday cards from the folks at the DOL this year.  In a recent opinion involving ERISA venue selection clauses, the court ruled that the DOL’s amicus curiae—(“friend of the court”)—brief was a mere “expression of mood” that wasn’t entitled to judicial deference.  (Smith v. AEGON Cos. Pension Plan, 6th Cir. No. 13-5492 (10/14/14)).  The court ultimately disagreed with the DOL’s stance that ERISA forbids venue selection clauses.  Indeed, venue selection clauses are alive and well in the Sixth Circuit and elsewhere. (See, e.g., Rodriguez v. PepsiCo LTD Plan, 716 F. Supp. 2d 855, 861 (N.D. Cal. 2010); Klotz v. Xerox Corp., 519 F. Supp. 2d 430, 436 (S.D.N.Y. 2007)).

As we know, the DOL often offers its two cents in private litigation by filing amicus briefs to announce its position on a disputed issue.  Here, the Sixth Circuit noted that the “Secretary of Labor has been particularly aggressive in attempting to mold statutory interpretation and establish policy” by filing amicus briefs in private litigation.  The court also noted that that the DOL had never before advanced its stated view on venue selection clauses through an enforcement action, regulation, or opinion letter.  The DOL had voiced this opinion only once before—in an amicus brief in a sister circuit.

The DOL didn’t request deference here. Yet the court considered whether the DOL was entitled to it, under either of two types of administrative deference recognized by the Supreme Court: “Chevron and “Skidmore deference.  Chevron deference may apply to an agency’s statutory interpretation where a statute is ambiguous or silent on an issue and the agency’s interpretation is a permissible one.  The court found that the DOL wasn’t entitled to such deference because its interpretation was unsupported by regulation, ruling, or administrative practice.

Under Skidmore deference, courts consider several factors in determining whether to defer to an agency’s statutory interpretation, including the thoroughness evident in the agency’s position, validity of its reasoning, and consistency with earlier and later statements on an issue.  The court found that such deference didn’t apply here.  Specifically, the DOL was “no more an expert” than the court in determining whether a statute forbid venue selection.  Also, the DOL’s “new interpretation” was inconsistent with its “prior acquiescence” to venue selection clauses.  The DOL’s position also “lacked longevity.”  The court thus viewed the DOL’s stance as a mere “expression of mood” not entitled to deference.  Ouch.

The court went on to hold that the plan’s venue selection clause was presumptively valid and enforceable.  The court found that such clauses do not place an excessive burden on participants, are not forbidden by ERISA, and further ERISA’s goal of uniform administrative schemes and low-cost plan administration.

This decision is unlikely to thwart the DOL’s active amicus program in ERISA cases and elsewhere.  But it’s nice to know that the Sixth Circuit recognizes limits on the agency’s ability to influence private litigation absent statutory support or past involvement in an issue.

The EEOC Tries To Ground HIPAA-Compliant Wellness Programs Through Litigation

Posted in Uncategorized

By: Mark Casciari, Ben Conley and Kylie Byron

The EEOC has commenced two lawsuits since August against employers who have established wellness programs that appear to comply with HIPAA’s wellness rules (as expanded by the Affordable Care Act).  The EEOC contends that the programs violate the Americans with Disabilities Act (ADA). The EEOC alleges that the ADA prohibits employers from penalizing participants who fail to complete a health risk assessment/biometric screening if participation was not “voluntary.”

Nothing in the ADA restricts wellness programs to those that are “voluntary.”  To the contrary, the ADA contains a benefit plan safe harbor that limits ADA applicability in the benefit plan context to claims that a plan is used as a subterfuge for disability-based discrimination in non-benefit aspects of employment.  The EEOC conveniently ignores this safe harbor.

The EEOC has said that it is considering formal guidance on the applicability of the ADA to HIPAA-compliant wellness programs, but now that guidance appears unlikely given a split in views of the EEOC Commissioners on the subject.

The facts of the two cases just filed by the EEOC are worth noting.  In the first case, involving Orion Energy Systems, the employer allegedly canceled an employee’s medical insurance and subsequently terminated her employment because she would not participate in medical exams that are said to have asked disability-related wellness program questions.

In the second case, the EEOC sued Flambeau, Inc. for allegedly cancelling an employee’s medical plan after he failed to complete a health risk assessment and biometric screening that was part of the company’s wellness program.  The employee alleged he could not complete the health risk assessment/biometric screening because he was on medical leave.

Considering the wellness program structures alone (and putting aside for now the alleged termination of employment in Orion and the fact that the employee was arguably not given an effective opportunity to complete the requirements in Flambeau), the EEOC’s position in both cases runs counter the decision of the Court of Appeals for the Eleventh Circuit in Seff v. Broward County, 691 F.3d 1221 (11th Cir. 2012).  In Seff, the Court upheld what could be characterized as an “involuntary” wellness program by citing to the ADA benefit plan safe harbor.  There, the employer imposed a $20 biweekly premium surcharge on employees who refused to complete a health risk assessment/biometric screening. The Court found that deduction was a term in a benefit plan, and thus protected by the ADA safe harbor.

A challenge based on a similar program is pending in Oregon against the Oregon Public Employees’ Benefit Board (PEBB).  Notably, the EEOC did not participate in the Seff case and has not yet weighed in on the suit against the Oregon PEBB

Employers with wellness programs, especially HIPAA-compliant programs that can be seen as aggressive, need to be aware that, even though the EEOC is lurking, there are sound arguments to keep the EEOC at bay.

The Supreme Court To Address ERISA’s Statute Of Limitations In A 401(k) Fee Case

Posted in 401(k) Fees and Investment Selection Litigation

By: Mark Casciari and Gina Merrill

In 2006, a number of large companies that sponsored ERISA 401(k) plans were sued by clients of the Schlichter, Bogard & Denton law firm for, among other things, excessive 401(k) plan provider fees.  The fee litigation placed at issue ERISA Section 413’s limitations rule, which requires the filing of a complaint within the earlier of a six year repose period after the claim accrued or a three year period after the claim accrued with actual knowledge of the violation.  Section 413 also provided a special rule if fraud or concealment of the violation is adequately alleged and shown — the complaint then must be filed within six years after the date of discovery of the violation.

Most of the Schlichter firm cases, but not all, have been resolved though settlement or decisions on the merits of the complaints.  One ongoing Schlichter firm case is Tibble v. Edison International, 729 F.3d 1110 (9th Cir. 2013).  In Tibble, the Court of Appeals for the Ninth Circuit held, in part, that “the act of designating [401(k)  plan investment options] starts the six-year period under section 413(1)(A) for claims asserting imprudence in the design of the plan menu.”  Id. at 1119.  The Ninth Circuit explained that a contrary result would “make hash out of ERISA’s limitation period and lead to an unworkable result.”  Id.  The Ninth Circuit roundly rejected the plaintiff “continuing violation” theory endorsed by the Department of Labor as out of step with the language and purpose of the statute.  The limitations concerns animating the Tibble decision reflect the quintessential concerns that have led to the imposition of statutes of limitation — loss of hard evidence, faded witness memories, and the possibility of being hauled into court for events that occurred 15 or 30 years prior to the commencement of the litigation.  The courts have also been concerned that lax or no enforcements of limitations periods will lead to more litigation and uncertainty in the administration of the law.

On October 2, the Supreme Court announced that it will decide if the Ninth Circuit got it right when it applied a limitations bar in Tibble.

If the Court reverses the Ninth Circuit’s limitations decision, Section 413’s six-year limitations periods may provide little repose and less comfort for plan fiduciaries defending cases to which Section 413 applies.

Contract’s Limitation Provision Is Not Reasonable, Says Court

Posted in Plan Administration Litigation

By: Amanda Sonneborn and Jim Goodfellow

In Heimeshoff v. Hartford Life & Accident Insurance Company, last year the Supreme Court unanimously concluded that a plan’s limitation period, which required a claimant to bring an action within three years of when proof of claim was due, was enforceable, even though the contract’s limitation period was shorter than the applicable statute of limitations.  The Court said that a plan limitations period should be enforced so long as it is reasonable.

Following Heimeshoff, the Southern District of California recently provided guidance as to what may constitute an unreasonable limitations period.  In Nelson v. Standard Insurance Company, the Southern District of California concluded that application of a limitations provision that provided the claimant with 100 days within which to file a complaint in federal court was not reasonable and thus not enforceable.  The plan’s provision required a legal action to be brought within three years after the earlier of either (1) the date the administrator received proof of loss or (2) the time within which Proof of Loss was due to the administrator.  First, the Court stated that it could not determine with certainty the date upon which the date the contractual limitations period began to run.  As such, it was possible that the time period ran before the administrator finished its administrative analysis of the claim.  Alternatively, the Court stated that even if it used Defendant’s suggested date, it only provided Plaintiff with, in effect, 100 days to file his suit.  The Court found that both potential time frames were unreasonably short.

This case makes clear that to be reasonable, at least in certain jurisdictions, the time period allotted by a plan should be long enough to encompass the administrative review process.  If the plan’s period calls for a lawsuit to be filed prior to the completion of the administrative review, a Heimeshoff argument becomes more difficult to win.  But, if the plan’s term expired after the administrative review process, chances of success on a statute of limitations argument increase.  The Supreme Court did not set a base line limitations period, and it will take further case law to establish the minimum that courts generally will accept.  What we know now is that, at least in the circumstances presented in Nelson and in the Southern District of California, 100 days was not reasonable.

Labor Department Focusing On Brokerage Windows in 401(k) Plans

Posted in 401(k) Fees and Investment Selection Litigation, Plan Administration Litigation

By: Ian Morrison, Sam Schwartz-Fenwick and Abigail Cahak

On August 20, 2014, the U.S. Department of Labor’s (“DOL”) Employee Benefits Security Administration announced that it is requesting information on the use and prevalence of brokerage windows in 401(k) and similar plans.

Brokerage windows are a common feature in defined contribution plans (most commonly 401(k) plans).  They allow participants to choose investment options beyond those selected and monitored by a plan fiduciary.  Brokerage windows are popular amongst participants and plan sponsors as they enable participants to build more customized and diversified investment portfolios.

The DOL’s Request for Information (“RFI”) is intended to “assist the Department in determining whether, and to what extent, regulatory standards or safeguards, or other guidance, are necessary to protect participants’ retirement savings.”  Specifically, the RFI asks interested parties to provide information to answer 39 questions concerning the

  • Scope of investment options available;
  • Types of individuals who participate;
  • Process used to select a brokerage window and provider;
  • Fiduciary oversight;
  • Costs;
  • Role of advisers; and
  • Disclosure of information and options to participants.

The DOL’s focus on brokerage windows could result in regulations that will have an impact on large numbers of defined contribution plans.  If past experience is any indicator, the ensuing regulations may prove onerous for plan sponsors and fiduciaries, and may serve to curtail participant choice in investing.

Comments are due to the DOL by November 19, 2014.

Employer Has No Claim Against Multiemployer Trustees for Mismanagement

Posted in Withdrawal Liability

By: Ron Kramer

On August 14, 2014, in DiGeronimo Aggregates, LLC, Case No. 13-4389 (6th Cir. August 14, 2014), the Sixth Circuit Court of Appeals held that employers have no cause of action  against multiemployer fund trustees for their negligent management of plan assets.  Right or wrong, the decision is bad for employers and for the oversight of multiemployer funds generally.

DiGeronimo Aggregates was one of several employers impacted when the defendant Trustees terminated the Teamsters Local Union No. 293 Pension Plan (“Plan”) after substantially all of the participating employers had withdrawn.  This triggered a mass withdrawal, subjecting DiGeronimo to $1.7 million in liability.  DiGeronimo filed suit against the Trustees alleging their negligent management of Plan assets caused DiGeronimo harm in the form of increased withdrawal liability.  Under ERISA Section 4301(a), 29 U.S.C. § 1451(a), DiGeronimo as an employer is entitled to bring an action for appropriate legal or equitable relief if it is adversely affected by the act or omission of any party under Subtitle E of ERISA (the multiemployer plan provision subtitle) with respect to a multiemployer plan.  DiGeronimo and the Trustees agreed that Section 4301 was simply a “standing” provision, and that it conferred no substantive rights.  DiGeronimo, however, asked the court to recognize a common law right of employers to bring negligence claims against trustees.  The district court dismissed the claim, and DiGeronimo appealed.

The Sixth Circuit made short work of the claim, holding that DiGeronimo had no cause of action under the common law of ERISA for harm caused by the Trustees’ alleged negligent plan management.  The Court first recognized that the parties agreed that Section 4301(a) “confers no substantive rights but simply identifies who can pursue a civil action to enforce the sections governing multiemployer plans.”

Turning to federal common law, the Court acknowledged that it has recognized common law claims in limited instances where:  (1) ERISA is silent or ambiguous; (2) there is an awkward gap in the statutory scheme; or (3) federal common law is essential to the promotion of fundamental ERISA policies.  Here the Court did not consider ERISA to be silent or ambiguous since ERISA  provisions expressly address who can bring claims against trustees for what is basically a breach of fiduciary duties, and employers were not included.  The Court did not see any awkward gap in the statute given trustees could still be held accountable for any mismanagement, it was just that participants and beneficiaries would make the claims — not employers.  The Court presumed Congress deliberately omitted an employer remedy for mismanagement from the statutory scheme because the trustees’ plan management duties flow to participants and beneficiaries, not contributing employers.

Third, the Court found that imposing for the benefit of employers an enforceable duty of care upon trustees regarding plan management is not essential to the promotion of fundamental ERISA policies.  The fundamental policy of ERISA (and according to the Court the Multiemployer Pension Plan Amendments Act (MPPAA)) is ensuring that private sector workers would receive pensions that employers promised them.  The Court ended by noting it could find no case where a court has ever recognized the existence of a negligence claim in favor of contributing employers under the federal common law of pension plans.

DiGeronimo Aggregates is a disappointing decision for employers who participate in multiemployer plans and who are concerned as to how they are managed.  In the Sixth Circuit,  they have the option to withdraw from funds if they do not believe they are well-managed.  Withdrawing employers then may challenge the assessment in arbitration.  Even though the DiGeronimo Aggregates says nothing about the scope of withdrawal liability arbitration, the decision may lead to even more employers exiting multiemployer funds, further damaging the financial stability of those funds and further depriving employees of the opportunity to participate in defined benefit pension plans.

Was the Sixth Circuit right?  An argument certainly can be made that employers should have a right to bring court actions against trustees.  Congress’s civil enforcement provision, ERISA Section 502, which address the right of participants, fiduciaries, beneficiaries and the DOL to bring claims for breaches of fiduciary duties, was adopted long before the MPPAA and its withdrawal liability scheme was imposed.  While Congress in theory could have amended Section 502, Congress likely never recognized or considered how negatively impacted participating employers would be by trustee negligence, or how that may impact the long term viability of the plans themselves.

There is a gap in the statutory scheme, and recognizing the right of employers — who have both a vested interest in well-run plans and the financial wherewithal to take legal action — to bring suit in court would help achieve one of the key goals of the MPPAA.  As the Court recognized in another part of its decision, a key issue that led to the MPPAA was the problem of employer withdrawals, and how rising costs as a result of the diminished contribution base caused by withdrawals forced further withdrawals that could lead to the demise of pension plans.  Granting employers the ability — as any other interested party — to sue in court to ensure plans are well-managed will improve the stability of those plans and eliminate the need for employers to withdraw.

Lastly, both parties agreed Section 4301(a) was only a standing provision and conferred no rights, but is that correct?  The Court cited Bay Area Laundry and Dry Cleaning Pension Trust Fund v. Ferbar Corp., 522 U.S. 192, 202-03 (1997), but there the Supreme Court rejected an employer’s attempted use of Section 4301(a) to argue that the statute of limitations for collecting on withdrawal liability ran from the date the employer withdrew since a withdrawal “adversely affected” the Plan.  The Supreme Court noted Section 4301(a) sets forth who may sue for a violation of the obligations established Subtitle E, and that it did not make an “adverse effect“ unlawful per se.  Here, DiGeronimo basically was arguing the Trustees breached their fiduciary duties in managing plan assets.  While DiGeronimo was impacted by that in the sense its withdrawal liability assessed under ERISA Subtitle E would be higher, the purported malfeasance was indirect and involved ERISA violations outside of Subtitle E.  Employers who truly are more directly impacted by a plan’s actions or omissions over substantive provisions of Subtitle E, especially violations of those substantive provisions, may nonetheless have a cause of action to sue in court under Section 4301(a).

In the meantime, until a court rules otherwise, employers who are not satisfied with the management of their funds are left with withdrawing and arbitrating if they cannot convince the trustees  to see the error of their ways.