Rare Motion for Reconsideration Granted by District Court in ERISA Suit

Legal experts generally consider reconsideration of a judgment an extraordinary remedy, one which will be granted only sparingly; even so, a federal district court has admitted key mistakes and says it will reconsider its ruling in a retirement plan lawsuit in which it had previously denied summary judgement in favor of the defendants.

The U.S. District Court for the Middle District of Pennsylvania has ruled in an Employee Retirement Income Security Act (ERISA) lawsuit targeting WellSpan Good Samaritan Hospital, an acute care hospital in Lebanon, Pennsylvania.

The district court’s new decision comes after its previous move denying the hospital defendants’ motion for summary judgment to toss plaintiffs’ claims, which cover a variety of fiduciary breach allegations. Specifically, the district court’s new decision says it will fully reconsider its ruling to deny summary judgement on behalf of defendants, essentially because the court confused subtle elements of Third Circuit case law. 

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This is a rare step in ERISA litigation and in the federal district courts in general. As explained in a helpful primer prepared by LexusNexus, the Federal Rules of Civil Procedure do not actually expressly allow motions for reconsideration, but district courts “generally treat them as being filed under Rule 59 or 60.”

“Still, reconsideration of a judgment is considered an extraordinary remedy which will be granted only sparingly,” the legal experts note. “Rule 60(b) allows for ‘relief from a final judgment, order, or proceeding’ in certain circumstances. Those circumstances include mistake, excusable neglect, newly discovered evidence, fraud by an opposing party, and ‘any other reason that justifies relief.’”

As laid out in the text of the decision, in sum, the plaintiff, Daria Kovarikova, alleged that defendants, through agents and co-fiduciaries, “misrepresented to her that her retirement benefit plan would not change or would only change to her advantage when defendants terminated the residency program of which she was a part.” Plaintiff claimed she relied on the misrepresentation and suspended her search for a new job under the mistaken belief that, in addition to receiving a retention bonus for remaining employed with defendants, her existing benefits would not change.

“Defendants ultimately filed a motion for summary judgment, which we denied,” the new decision states. “In the memorandum accompanying our order, we found that the representations plaintiff relied on were not material at the time because changes to the retirement plan were not yet being seriously considered. However, we found that defendants had a duty to correct plaintiff’s misunderstanding once the plan changes were being seriously considered. The defendants now seek reconsideration of our order. The motion has been fully briefed, and is ripe for our review.”

The text of the decision first weighs whether the motion for reconsideration should be barred due to the fact that the defendant filed the motion a full week beyond the deadline set by the court and rules of procedure. Weighing the principles of “excusable neglect,” the court sides with defendants and overlooks the timeliness question. The decision adds some context here by noting that pretrial deadlines “had been continued to accommodate medical treatment for plaintiff’s lead counsel.” Furthermore, the delay was “merely one week and has little to no impact on the judicial proceedings.” Finally, “as noted, the delay was due to a careless mistake, not to anything suggesting bad faith.”

Getting to the heart of the matter, the defendants argue that the court made clear errors of law in three ways: “First, that the alleged statements do not qualify as material misrepresentations and defendants had no duty to go back and correct plaintiff’s understanding; second, that plaintiff provided no evidence that she relied on the alleged statements; and third, that plaintiff provided no evidence that she suffered damages.”

On the first question, the court frankly admits it committed an error: “Defendants first argue that the alleged statements do not qualify as material misrepresentations and that they had no duty under ERISA to correct plaintiff’s understanding about whether her benefits would change. Defendants argue that the court misapplied Third Circuit precedent to create a duty that does not exist: specifically, the duty to go back and correct a statement about future benefits that, while not a material misrepresentation at the time, became misleading once a change in benefits took place. Defendants suggest that the court blended two lines of Third Circuit case law that are consistent but distinct. Upon careful reconsideration, we agree and concede that we erred.”

Offering additional detail, the decision points out that the Third Circuit has clarified that “while the two [relevant] lines of cases [i.e., Fischer II and Bixler] are consistent, they do not overlap.”

Bixler applies to existing benefits, Fischer II applies to possible benefits,” the decision explains. “In conducting our analysis, we inadvertently omitted this subtle nuance and fashioned a duty that does not fit established Third Circuit precedent.”

Thus the court draws new conclusions about the facts of this case, leading to its decision to reconsider: “Plaintiff’s ERISA claim rested on the statements made to her before the plan changes were under serious consideration. Plaintiff has not alleged that she was given incomplete information about existing benefits. Indeed, the evidence clearly would not support such an allegation. By time the changes to the plan went into effect—that is, became her existing benefits—defendants had provided all employees with information about the change and established information sessions to fully explain the changes. Thus, the evidence does not support any contention that plaintiff was misinformed about existing benefits at any time. Plaintiff’s allegations, rather, focus on statements made about possible benefits. That requires a Fischer II analysis, which we already said could not be sustained by the evidence. Because the plan changes were not under serious consideration when the statements were made, they were not material misrepresentations. Without a material misrepresentation, plaintiff cannot sustain her ERISA claim.”

Important to note, this ruling does not settle the case outright, thought it does seem to indicate a motion for summary judgement in favor of defendants could be more likely this time around: “For the reasons stated above, we shall grant defendants’ Motion for Reconsideration. A separate order shall issue in accordance with this ruling.”

University of Rochester Called Out for Excessive Fees Paid to TIAA

The lawsuit claims the university failed to adequately benchmark fees, negotiate for better fees, or reveal true fees participants were paying.

A participant in the University of Rochester Retirement Program has filed a lawsuit alleging that plan participants have paid an estimated $72 million in in recordkeeping, distribution, and mortality risk fees to provider TIAA.

According to the complaint, TIAA has been able to extract “grossly excessive fees” because its fees are tethered not to any actual services it provides to the plan, but rather, to a percentage of assets in the plan.

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The complaint notes that this action is similar, but narrower in scope, to 18 separate lawsuits pending in federal district courts around the country which allege a university defendant breached its Employee Retirement Income Security Act (ERISA) fiduciary duties by allowing TIAA to collect excessive fees from the university’s retirement plan. It also notes that it appears TIAA is willing to meaningfully reduce its fees if universities will just ask. As an example, the complaint says, shortly after the University of Chicago was sued, it announced to its plan participants that it renegotiated TIAA’s fees, and successfully reduced fees on an annual basis by several million dollars.

In a statement to PLANADVISER, TIAA said, “TIAA stands firmly behind its offer of high-quality retirement products and services with strong long-term performance and reasonable costs, which provide lifetime income for millions of customers.”

The lawsuit claims that since the University of Rochester’s 403(b) plan has more than $4.2 billion in assets, it has tremendous bargaining power to demand low-cost, high-quality administrative services; however, it instead has failed to adequately take proper measures to understand the real cost to plan participants for TIAA’s services, to properly inform participants of the fees they were paying to TIAA as required by law, and to act prudently with such information.

The lawsuit alleges the quarterly account statements that the university provides to plan participants do not disclose any administrative fees paid to TIAA by participants. In addition, the plan’s annual Form 5500 Department of Labor (DOL) disclosures are supposed to identify the administrative fees paid to TIAA, but they do not clearly identify this information either. The plan’s Form 5500 identifies TIAA as receiving “indirect compensation” (revenue sharing) but states the amount TIAA received is “0” or “”none.” The complaint says that is false.

The university is also called out for failing to adequately benchmark plan fees. “If a fiduciary decides to use revenue sharing to pay for recordkeeping, it is required that the fiduciary (1) determine and monitor the amount of the revenue sharing and any other sources of compensation that the provider has received, (2) compare that amount to the price that would be available on a flat per-participant basis, or other fee models that are being used in the marketplace, and (3) ensure the plan pays a reasonable amount of fees,” the lawsuit says. The plaintiff argues that determining the price that would be available on a flat per-participant basis, or the price available under other fee models requires soliciting bids from competing providers: “In billion-dollar plans with over 36,000 participants, such as the Plan here, benchmarking based on fee surveys alone is inadequate. Recordkeeping fees for jumbo plans have declined significantly in recent years due to increased technological efficiency, competition, and increased attention to fees by sponsors of other plans such that fees that may have been reasonable at one time may have become excessive based on current market conditions. Accordingly, the only way to determine the true market price at a given time is to obtain competitive bids,” the complaint states.

The plaintiff argues that based on information currently available regarding the plan’s features, the nature of the administrative services provided by TIAA, the plan’s participant level, and the recordkeeping market, benchmarking data indicates that a reasonable recordkeeping fee for the plan would have been a fixed amount between $1,500,000 and $1,900,000 per year (approximately $50 per participant with an account balance); however, TIAA is collecting roughly $10,000,000 per year (on average approximately $277 per participant).

In addition to the claims regarding excessive fees, the lawsuit says TIAA’s participant loan process violates ERISA self-dealing, or prohibited transaction, rules. It requires a participant to borrow from TIAA’s general account rather than from the participant’s own account. In order to obtain the proceeds to make such a loan, TIAA requires each participant to transfer 110% of the amount of the loan from the participant’s chosen investments to one of TIAA’s general account products as collateral securing repayment of the loan. The general account product pays a fixed rate of interest, currently guaranteed to be 3%. All of the assets held in TIAA’s general account are owned by TIAA. Therefore, TIAA also owns all the assets transferred to its general account to “collateralize” the participant loan.

“Because the participant loan is made from TIAA’s general account, the participant is obligated to repay the loan to TIAA’s general account, and the general account earns all of the interest paid on the loan, in contrast to the loan programs for virtually every other retirement plan in the country, where the loan is made from and repaid to the participant’s account and the participant earns all of the interest paid on the loan,” the complaint states.

The lawsuit asks that the university make good to the 403(b) plan any losses to participants resulting from the breaches of fiduciary duties alleged and for the court to grant other equitable or remedial relief as appropriate.

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