Compliance June 19, 2019

Funded Status Complicates Fiduciary Lawsuit Appealed to SCOTUS

Crucial to the case is the fact that the pension plan is not facing insolvency, raising the question of whether retirees can prove concrete harms occurred which are necessary for establishing ERISA standing.

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In a newly published analysis, a trio of attorneys with Bressler, Amery & Ross consider the case of Thole v. U.S. Bank, which has been appealed to the Supreme Court in the hope of testing the question of whether well-funded pensions can be sued for “harming” retirees.

The authors are Thomas Roberts, a principal in the firm’s securities practice; Donald Winningham III, counsel; and Kathryn Rockwood, an associate in the firm’s securities practice. According to the trio, the case of James J. Thole et al. v. U.S. Bank NA et al. asks the question whether participants in U.S. Bank’s pension plan can sue their employer for alleged Employee Retirement Income Security Act (ERISA) fiduciary breaches even though their pension plan is not facing funding issues—implying that individual retirees cannot establish that they have suffered an actionable harm.

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Specifically, the Supreme Court has been asked to weigh the following questions: “(1) Whether an ERISA plan participant or beneficiary may seek injunctive relief against fiduciary misconduct under 29 U.S.C. § 1132(a)(3) without demonstrating individual financial loss or the imminent risk thereof; and (2) whether an ERISA plan participant or beneficiary may seek restoration of plan losses caused by fiduciary breach under 29 U.S.C. § 1132(a)(2) without demonstrating individual financial loss or the imminent risk thereof.”

As the attorneys point out, back in October 2018, the Supreme Court requested the United States Solicitor General to “opine whether the court should grant cert to the matter filed by retirees.” As detailed in a lengthy brief, the Solicitor General responded in the affirmative. The next step in the case is a conference of the Supreme Court justices on this matter, set for June 20.  

Roberts, Winningham and Rockwood recall that this case emerged after retirees alleged that U.S. Bank breached its fiduciary duties by engaging in prohibited transactions under ERISA, which the retirees say in turn caused considerable losses to their defined benefit pension plan. Crucial to the case is the fact that the pension plan is not facing insolvency, raising the question of whether these retirees can prove concrete harms occurred which are necessary for establishing standing.

“Whether the Supreme Court grants cert and how it decides the circuit split remains to be seen,” the attorneys suggest.  

In the original Supreme Court appeal, the retirees say their case presents two independent, substantial legal issues that have divided the courts of appeals regarding when an ERISA plan participant may invoke the remedies Congress explicitly authorized to police fiduciary misconduct and protect federally guaranteed benefits. They explain how alleged fiduciary breaches caused $750 million in losses to their pension plan, and why they feel injunctive relief is appropriate under 29 U.S.C. 1132(a)(3) and restoration of the plan’s losses under 29 U.S.C. 1132(a)(2).

According to the retirees, the Eighth Circuit inappropriately affirmed district court dismissal of their claims under the belief that petitioners had not yet suffered any individual financial harm—as the plan did not at that point face a risk of default.

“In so holding, the Eighth Circuit departed from holdings of other circuits under both Sections 1132(a)(3) and 1132(a)(2), and rejected the long-held position of the Department of Labor, which has repeatedly urged the courts of appeals to let these claims proceed,” the appeal states.

In its latest brief arguing against the conclusions of the Solicitor General—and against the Supreme Court weighing in—U.S. Bank argues that “despite its ultimate conclusion, the United States’ brief reads like a recommendation against certiorari.”

“The United States correctly determines the Eighth Circuit’s decision implicates no split,” the U.S. Bank opposition brief states. “It admits the Eighth Circuit passed on no Article III questions and that [the Supreme Court] is not ordinarily one of first review. And it suggests the Court consider the additional question whether the Eighth Circuit properly addressed statutory standing first—which could preclude any need to decide the actual questions presented. Nevertheless, the United States recommends the Court grant certiorari to address what amounts to a potential alternative ground for affirmance—an unaddressed question of Article III standing.”

According to U.S. Bank’s argument, the Solicitor General “presses three abstract legal ‘theories’ conceivably relevant to some plaintiffs, somewhere. But it fails to explain how this petition presents a vehicle for addressing these theories. It does not.”

Compliance June 18, 2019

MFS Reaches Settlement Agreement in ERISA Lawsuit

In addition to a multi-million dollar monetary settlement, MFS has agreed to certain plan design changes moving forward.

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The parties in the lawsuit Velazquez v. MFS have filed a proposed settlement agreement in the U.S. District Court for the District of Massachusetts.

The lawsuit had alleged that MFS defendants seeded the company’s own retirement plans primarily with MFS investment offerings, without investigating whether plan participants would be better served by investments managed by unaffiliated companies. The plaintiffs argued the retention of these proprietary mutual funds cost plan participants millions of dollars in excess fees. The plans in question had a combined $515,246,820 in assets as of the end of 2012.

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The lawsuit also accused the defendants of failing to select the least expensive share class available for the plan’s designated investment alternatives, failing to investigate the use of separate accounts and collective trusts as alternatives to mutual funds, and failing to monitor and control recordkeeping expenses. Plaintiffs argued the defendants also failed to remove poorly performing investments from the plan.

Under the settlement, MFS shall cause its insurers to pay $6,875,000 into a qualified settlement fund to resolve the claims of the court-approved class. The net settlement amount—after deduction of any Court-approved attorneys’ fees and costs, administrative expenses, or class representatives’ compensation—will be allocated to class members according to a plan of allocation approved by the Court. For the most part, the settlement agreement stipulates, allocations to current participants who are entitled to a distribution under the plan of allocation will be made directly into their existing accounts in the plans. Authorized former participants who are entitled to a distribution may receive their distribution as a check or, if available and they elect, as a rollover to a qualified retirement account.

Beyond the monetary payment to the plan, the settlement provides that for a period of no less than three years beginning on the effective date of the settlement, the plans’ qualified default investment alternative options will be one or more target-date funds that are unaffiliated with MFS, and are index funds or are funds-of-funds that invest in underlying index funds. Further, during each year for a period of no less than three years following the date of filing of the motion for preliminary approval of the settlement, MFS will retain a third-party investment consultant unaffiliated with MFS for an engagement to provide an annual evaluation of the plans’ investment lineup and review the plans’ investment policy statement.

As stipulated in the settlement agreement documents, all class members and anyone claiming through them will fully release the plans as well as individual fiduciary defendants and the released parties from all released claims. The released claims include, but are not limited to, all claims that are or could be based on “any of the allegations, acts, omissions, purported conflicts, representations, misrepresentations, facts, events, matters, transactions or occurrences that were or could have been asserted in the class action.” They also include all claims that that arise out of, or are related to, the facts alleged in the class action, as well as those claims that “relate to the direction to calculate, the calculation of, and/or the method or manner of allocation of the net settlement amount pursuant to the plan of allocation and/or that relate to the approval by the independent fiduciary of the settlement agreement, unless brought against the independent fiduciary alone.”

The resolution of this case comes nearly two years after the filing of the complaint in the Massachusetts District Court. During the course of the action, case documents show, the settling parties engaged in extensive discovery, including production of over 90,000 pages of documents by defendants, production of additional documents by the class representatives, production of documents by non-parties, four depositions of defense fact witnesses, and a deposition of one of the class representatives.

On May 9, 2019, the parties engaged in private mediation with a jointly-selected mediator. After extensive arm’s length negotiations supervised by the mediator, the settling parties reached a settlement in principle. Documents and exhibits laying out the proposed settlement agreement are available here.

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