High Court Decision Could Have Implications for ERISA Litigation

The decision was already cited in the Supreme Court's order regarding the Verizon pension risk transfer lawsuit.

A U.S Supreme Court decision in Spokeo Inc. v. Robins could have implications for Employee Retirement Income Security Act (ERISA) litigation.

The decision was already referenced in an order by the Supreme Court remanding the Verizon pension risk transfer lawsuit back to an appellate court. And, alerts from law firms suggest the decision will impact other ERISA litigation.

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The Spokeo suit applies to the Fair Credit Reporting Act of 1970 (FCRA). Spokeo, Inc., an alleged consumer reporting agency, operates a “people search engine,” which searches a wide spectrum of databases to gather and provide personal information about individuals to a variety of users, including employers wanting to evaluate prospective employees. After Thomas Robins discovered that his Spokeo-generated profile contained inaccurate information, he filed a federal class-action complaint against Spokeo, alleging that the company willfully failed to comply with the FCRA’s requirements.

A district court dismissed Robins’ complaint, holding that he had not properly pleaded injury in fact as required by Article III. The 9th U.S. Circuit Court of Appeals reversed. Based on Robins’ allegation that “Spokeo violated his statutory rights” and the fact that Robins’ “personal interests in the handling of his credit information are individualized,” the court held that Robins had adequately alleged an injury in fact.

NEXT: Additional review for determining injury

The Supreme Court remanded the case back to the 9th Circuit for review, finding that its Article III analysis was incomplete. It said the injury in fact requirement requires a plaintiff to show that he or she suffered “an invasion of a legally protected interest” that is “concrete and particularized” and “actual or imminent, not conjectural or hypothetical.”  The court further noted that a “concrete” injury need not be a “tangible” injury. It added that, Article III standing requires a concrete injury even in the context of a statutory violation; however, this does not mean that the risk of real harm cannot satisfy that requirement.

A blog by Seyfarth Shaw LLP attorney Mark Casciari says, “Add to these preconditions the Supreme Court’s Twombly holding, which said that any federal complaint, as a matter of federal civil procedure, must state a “plausible” claim, beyond speculation and conclusion, in order to be considered by a federal judge.”

Casciari notes that “Some ERISA litigation claims obviously involve concrete injuries. These include claims for denial of benefits that plan terms allow, plan investment losses resulting from a fiduciary breach and detrimental reliance on fiduciary misrepresentations. Other ERISA litigation claims less obviously involve concrete injuries. These include claims challenging a denial to provide plan documents in a timely fashion, claims challenging notice of plan amendments that arguably violate ERISA section 204(h), claims challenging a fiduciary breach attendant to an investment of plan assets in an overfunded defined pension plan, and claims challenging a failure to fund a defined benefit plan where the plaintiff has suffered no benefit denial.”

In the Verizon case, employees whose pension benefits were not transferred to an insurer had their claims of harm dismissed for lack of standing because they did not prove an injury in fact.

Simplicity and Nudges Can Help Employees Become Habitual Savers

The reasons people start saving for retirement can inform plan advisers and sponsors about educational nudges and plan design.

The Aegon Retirement Readiness Index (ARRI) measures retirement preparedness on a scale from 1 to 10 with scores of 8 and higher considered to be high retirement readiness, scores of 6 to 7.9 as medium, and less than 6 as low.

In the nine original countries where Aegon has been measuring retirement readiness since 2012, the ARRI increased from a score of 5.2 to 5.5 in 2016. This increase has been largely driven by positive movements in people’s feelings about planning and saving, yet it should be noted that this increase has been offset by a decline in people’s feelings of personal responsibility for providing sufficient income in retirement.

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Countries such as the United Kingdom and the United States have made the greatest progress in retirement readiness since 2012. The presence of well-developed third pillar pensions, in the shape of workplace defined contribution plans such as 401(k) plans in the United States, means that people have greater personal ownership over their retirement plans.

New research from Transamerica Center for Retirement Studies (TCRS) in collaboration with Aegon Center for Longevity and Retirement (ACLR) titled “A Retirement Wake-Up Call: The Aegon Retirement Readiness Survey 2016,” illustrates the importance of habitual saving and opportunities that can nudge or inspire non-savers to start saving. Thirty-eight percent of workers describe themselves as habitual savers (those who say they are always saving for retirement)—54% of U.S. respondents describe themselves as habitual savers. Habitual savers are seven times more likely to achieve a high ARRI score than the non-savers (37% compared to 5%).

NEXT: Offering ‘nudges’ to save, and making it easy

The reasons people start saving for retirement fall into two broad categories: "life stage" (47%) and "employment-related" (39%), the study finds. For example, 32% reported they started to save because they turned a certain age, and 16% said it was because they started a family. Sixteen percent said they started saving because their employer started contributing to their retirement plan, and 14% said they were automatically enrolled in their employer’s retirement plan. Nine percent reported they started saving when they got a pay raise.

The research report suggests this information shows an opportunity for employers to ‘nudge’ people into saving for retirement. For example, milestone birthdays could be a good opportunity to share with workers the need to save for retirement. Some people seek financial advice when taking out or re-mortgaging their home, which is a potential opportunity for advisers to introduce other savings options such as retirement planning products. Major lifestyle changes such as having children may encourage people to consider their long-term finances, and present another possible opportunity to engage them in discussions about retirement.

In addition, the report says, convenience and making it easy to save should be key features of any sustainable retirement system in which people are expected to play a role in financing their old age.

Around two-thirds of workers globally (65%) find the idea of automatic, default arrangements that enroll them into a retirement savings plan based on a contribution level of 6% of annual salary to be very or somewhat appealing. In the U.S., 75% of workers find the idea appealing.

Even when the survey inquired about higher contributions at 8% of salary, it still found broad support, with 61% of workers globally finding it appealing. In the U.S., 72% did.

NEXT: The need for retirement and financial education

Currently, many workers are neglecting to make any kind of financial plan for retirement. Workers with a retirement strategy are more realistic in preparing for retirement and achieve a higher ARRI score than those without a strategy, yet 38% globally do not have a retirement plan. Among vulnerable groups, the proportion of those without a plan increases to 42% among women and 49% of those on low incomes.

Financial backup plans that help people deal with the unexpected are largely absent, the research finds. More than half of people with such plans (58%) say their savings are included in their backup plans. People overlook the benefits of insurance products as more cost-effective means of protecting their health and income, the report suggests.

Individuals need help and advice when it comes to planning for retirement and, among other options, many turn to friends and family who may not be the most expert source of information.

In addition, the survey findings reveal a widespread reliance on savings accounts as a possible route to retirement income. With interest rates expected to remain low in many countries, there is a need to guide people toward better asset allocation decisions both in saving for retirement and the decumulation phase.

The full research report is here.

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