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An ERISA session for the Supreme Court

Financial, Executive and Professional Risks (FINEX)
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By Anthony Dragone | August 7, 2019

A look at four ERISA cases that could have a major impact on companies and plan fiduciaries.

While not among the most high-profile matters on the docket, the Supreme Court of the United States has once again decided to tackle some pressing issues related to the Employee Retirement Income Security Act (ERISA). After several years without hearing an ERISA case, the Court is now poised to consider several matters in the coming term.

As these cases demonstrate, plaintiffs continue to attack the status quo and look to expand liability by softening pleading standards, tightening exclusionary restrictions, limiting threshold requirements and pushing the burden of proof onto defendants. Success for plaintiffs on any of these issues could lead to an increase in claim frequency, while success on most of these issues will embolden a plaintiffs' bar looking to turn a cottage industry into a factory.

"More harm than good"

(IBM v. Jander)

On June 4, 2019, the Supreme Court granted certiorari in Retirement Plans Committee of IBM v. Jander1 to reexamine the "more harm than good" pleading standard as set forth in Fifth Third Bancorp v. Dudenhoeffer. In Dudenhoeffer, the Supreme Court held that courts should consider whether a plaintiff has plausibly alleged that "a prudent fiduciary in the defendant's position could not have concluded that . . . publicly disclosing negative information would do more harm than good to the fund by causing a drop in the stock price and a concomitant drop in the value of the stock already held by the fund."2 In Jander, the Supreme Court will determine if the plaintiffs' general allegation that the "harm of an undisclosed fraud grows over time"3 is sufficient to satisfy this standard.

Actual knowledge

(Intel Corp. Investment Policy Committee v. Sulyma)

Plaintiffs continue to attack the status quo and look to expand liability by softening pleading standards, tightening exclusionary restrictions, limiting threshold requirements and pushing the burden of proof onto defendants.

Six days later, on June 10, 2019, the Supreme Court granted certiorari in Intel Corp. Investment Policy Committee v. Sulyma4 to determine when the three-year statute of limitation period begins to run under ERISA Section 413(2). Plaintiffs brought a putative class action against the fiduciaries of Intel's 401(k) plans claiming, among other things, breach of their fiduciary duties by charging excessive fees. The language under the section states the period begins to run from the "earliest date on which the plaintiff had actual knowledge of the breach or violation."5 In Intel, the pertinent information was disclosed to the plaintiff outside the limitations period; however, plaintiff claims to have not read the information. The Supreme Court will determine if the plaintiff's failure to read the disclosed information means that plaintiff did not have "actual knowledge" and therefore is not time-barred from bringing the suit.

Standing

(Thole v. US Bank)

The Supreme Court also asked the solicitor general to file a brief in the matter of Thole v. US Bank.6 Here the Court will determine if it will hear a dispute regarding whether a plan participant can bring a lawsuit against the fund managers when the participant has not yet suffered any individual financial injury due to the plan being overfunded.

Burden of proof

(Putnam Investments v. Brotherston)

Finally, the Supreme Court requested the solicitor general provide the government's views in Putnam Investments v. Brotherston.7 In Putnam, former employees allege that the company allowed plan participants to invest in mutual funds managed by the company without have properly vetted the funds. A circuit split has developed regarding whether it's the plaintiff's burden to show that the losses to the plan resulted from defendant's breach of duty or whether the defendant must prove that it did not cause the loss in question. Given that 10 different circuits have weighed in on the issue and are split six to four (the Second, Sixth, Seventh, Ninth, Tenth and Eleventh circuits believe it to be the plaintiff's burden, while the First, Fourth, Fifth and Eighth circuits believe it is the defendant's burden), most experts agree that the Court is likely to take up this matter.

While the above matters may not be driving the news cycle, these ERISA cases could have a major impact on companies and plan fiduciaries. These cases have the potential to significantly increase exposure and erode certain protections upon which companies have long been relied. Given the potential changes to the law, it is important for fiduciaries to consult with legal and insurance professionals to ensure that the company, the fiduciaries and the plan assets are properly protected.

Willis Towers Watson hopes you found the general information provided in this publication informative and helpful. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal advisors. In the event you would like more information regarding your insurance coverage, please do not hesitate to reach out to us. In the United States, Willis Towers Watson offers insurance products through licensed subsidiaries of Willis North America Inc., including Willis of New York, Inc.


Endnotes

  1. Retirement Plans Committee of IBM v. Jander, No. 18-1165.
  2. Bancorp v. Dudenhoeffer, 134 S. Ct. 2459 (2014).
  3. Retirement Plans Committee of IBM v. Jander, No. 18-1165, Reply Brief for Petitioners (May 6, 2019).
  4. Intel Corp. Investment Policy Committee, v. Sulyma, No. 18-1116.
  5. 29 U.S. Code § 1113.
  6. Thole v. U.S. Bank, 17-1712.
  7. Putnam Investments, LLC v. Brotherston, 18-926.
Author

Anthony Dragone
FINEX – Claims & Legal Group

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