IMHO June 6, 2011

IMHO: Commit, Meant

Much to my surprise, my son went to prom this weekend.

 

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Now, I realize that a lot of kids go to prom—and I also realize that more don’t go than is generally appreciated by those who do.  But my son, who at present isn’t in a relationship (and certainly not one serious enough to make prom attendance a “requirement”), has long been of the mindset that prom was just a lot of “bother,” and an expensive bother at that.

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Having committed himself to this event, however, we of course had to contend with all those things that constitute that “bother”: renting a tux, selecting flowers for his date, etc.  Later there emerged items like the expectations around the table at which (and with whom) he and his date would sit and the gathering(s) beforehand—and afterwards.  For the very most part, he dealt with each new “decision” calmly, though as time went on, you could see him taking deep breaths as he contemplated just how much more of this “bother” he would have to endure (girls seem to have a lot more tolerance, if not enthusiasm, for the social “nuances” of such occasions).  As for his Dad, I wondered if he would have gone along with the idea in the first place had he known just how “complicated” the process would become.

Setting up a retirement plan is not, generally speaking, a front-burner item for most employers, particularly among those at the smaller end of the market.  They have their hands full just staying in business and making a profit.  It’s not that establishing a workplace retirement plan is a “bother” exactly, but it’s one of those decisions that brings with it a series of other, related decisions—decisions that have to be made not just once, but reviewed and remade on an ongoing basis.  In my experience, this is not always fully appreciated by employers (many of whom it would seem would really just like to set it (up) and forget it).  Little wonder, then, that those who work with them to help them fulfill those responsibilities and make those decisions frequently wind up feeling like some kind of glorified “nag,” constantly prodding and reminding plan fiduciaries of the things to which they need to attend.

Ultimately, the decisions required for my son’s prom could only be postponed and/or ignored for so long.  At a certain point, it was simply too late to worry any more about tux and/or tie color, corsages, and/or driving arrangements.  And, as it turned out, doubtless in no small part because there was a date certain, all of the necessary decisions got made in time (though a couple seemed more or less ad hoc and at the last minute).

For plan sponsors, the issues are generally more complex: Suboptimal fund menus can live on almost indefinitely, plan design changes can nearly always be put off in perpetuity, and as for fee and/or provider reviews—well, unless there’s a fire, the intermittent “smoke” is fairly easily ignored.  There is, after all, no prom night, no single date on the calendar by which everything needs to be in order.  Plan sponsors inclined to put off till another day those hard and/or complicated decisions can often do so (and do so often).

However, those who choose not to “bother” with such decisions probably shouldn’t have bothered with setting up the plan in the first place. 

Compliance June 3, 2011

Solis Continues Fight Against MetLife

With the added support of the U.S. Supreme Court decision in CIGNA Corp. v. Amara, Secretary of Labor Hilda L. Solis again filed an amicus curiae brief with the 4th U.S. Circuit Court of Appeals to review its decision in a case against MetLife.
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Relying on previous Supreme Court decisions in Mertens v. Hewitt Assocs. and Great-West Life & Annuity Ins. Co. v. Knudson, the 4th Circuit concluded that section 502(a)(3) of the Employee Retirement Income Security Act (ERISA) does not allow the court to surcharge the Metropolitan Life Insurance Company (MetLife) for the life insurance proceeds that Debbie McCravy would have received but for its alleged fiduciary breaches (see “Solis Files Brief in Support of “Surcharge” for Fiduciary Breaches“).     

However, Solis’ brief noted that on the same day that the panel issued its decision, the Supreme Court decided CIGNA Corp. v. Amara, and ruled that surcharge is an available remedy under section 502(a)(3). The CIGNA opinion explains that surcharge, or monetary compensation by a fiduciary for loss resulting from the fiduciary’s breach of duty, was a “traditional equitable remed[y]” and thus falls within the “category of traditionally equitable relief” authorized by section 502(a)(3). The opinion further explains that Mertens and Great-West do not foreclose “make-whole” “monetary ‘compensation'” from qualifying as “appropriate equitable relief” under section 502(a)(3) when the relief is awarded for the breach of a duty by an ERISA fiduciary.  

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“The panel’s decision is thus incompatible with CIGNA, and rehearing or rehearing en banc should be granted to align the law in this Circuit with the recent holding of the Supreme Court,” the brief stated.

(Cont...)

The case was filed by McCravy, who was employed with Bank of America, which offered a dependent life insurance and accidental death & dismemberment welfare benefit plan that was insured and administered by MetLife. McCravy was the named beneficiary under a policy that covered her now deceased daughter, Leslie. 

Although McCravy paid and MetLife accepted premiums for coverage for Leslie until the time of Leslie's death in July 2007, Leslie was not eligible to participate in the plan because she was over the age of 19 at the time of her death, although she was younger than 19 when plaintiff first elected coverage.     

After MetLife denied her claim for life insurance benefits, McCravy filed suit in district court alleging that MetLife breached its fiduciary duty in administering the plan, and seeking equitable relief pursuant to ERISA section 502(a)(3). She argued that under a provision of the policy, she was entitled to convert the coverage on her daughter from the group insurance which funded the ERISA plan to an individual policy, and that she would have done so if she had been told she needed to do so.    

Because it was a breach for MetLife to have failed to inform McCravy of this, especially considering it accepted premium payments from her for years and allegedly led her to believe that this coverage was in place, she argued both that she was entitled to the proceeds under either a waiver/equitable estoppel theory or under a make-whole theory of equitable relief.    

The district court held that McCravy was not entitled to the full amount of the life insurance benefits, but that her sole available remedy was a return of the premiums she had paid for coverage on the life of her daughter. The court rejected her estoppel claim, reasoning that it would conflict with 4th Circuit precedent holding that ERISA does not allow an oral modification to the clear written terms of a plan, as well as with 4th Circuit cases holding that principles of waiver and estoppel are not part of the common law of ERISA.   

Similarly, the court rejected McCravy's argument that it should surcharge MetLife for the amount of the life insurance benefits. The court reasoned that the gravamen of McCravy's complaint was that MetLife wrongfully denied her life insurance benefits under the plan and that the fact that she could not bring a claim for benefits under ERISA section 502(a)(1)(B) did not change the fact that she sought plan benefits.    

The latest Solis brief is here.

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