Compliance December 3, 2018

USC Files Petition for Supreme Court to Review 9th Circuit’s Refusal to Compel Arbitration

The question before the high court is, “Whether an agreement to arbitrate ‘all claims’ that an ERISA plan participant ‘may have’ against a plan fiduciary encompasses a breach-of-fiduciary-duty claim under ERISA § 502(a)(2).”

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The University of Southern California (USC) has asked the U.S. Supreme Court to determine whether participants who filed a lawsuit challenging the management of the university’s two Employee Retirement Income Security Act (ERISA) retirement plans should be compelled to arbitrate their claims pursuant to an agreement signed with the university.

The plaintiffs in the case were required to sign arbitration agreements as part of their employment contracts. These agreements stated that these employees could only arbitrate claims brought on their own behalf. Denying a motion to compel arbitration, the 9th U.S. Circuit Court of Appeals concluded that the dispute fell outside the scope of the arbitration agreements because the claims were brought on behalf of the ERISA plans, not the individuals.

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In a petition for writ of certiorari, USC says the question before the high court is, “Whether an agreement to arbitrate ‘all claims’ that an ERISA plan participant ‘may have’ against a plan fiduciary encompasses a breach-of-fiduciary-duty claim under ERISA § 502(a)(2).”

In its petition, USC says the Supreme Court has repeatedly recognized, and granted certiorari to vindicate, the “liberal federal policy favoring arbitration” embodied in the Federal Arbitration Act (FAA). That policy requires, among other things, that “ambiguities as to the scope of [an] arbitration clause” be “resolved in favor of arbitration.”  According to USC, in accordance with the FAA’s statutory objectives, federal courts of appeals apply a presumption in favor of arbitrability and compel arbitration unless it can be said with positive assurance that the dispute is not encompassed by the parties’ agreement to arbitrate.

USC alleges that the 9th Circuit has transformed the FAA’s policy in favor of arbitration into a presumption against arbitration. It says the language of these arbitration agreements is more than adequately broad to encompass respondents’ breach-of-fiduciary-duty claims. “It is therefore impossible to review that expansive language and conclude with ‘positive assurance’ that the parties intended to exclude ERISA breach-of-fiduciary-duty claims from their otherwise-comprehensive arbitration agreements,” USC says in its petition.

In amicus briefs filed with the 9th Circuit, the Charles Schwab Corporation and the U.S. Chamber of Commerce also cited Supreme Court precedent in favor of arbitration.
Compliance November 30, 2018

Butch Lewis Act Said to Fail to Address Multiemployer Pension Deficits

The Pension Analytics Group says the act would only temporarily mask the deficits, as opposed to reducing them and that the only solution is to reduce benefits across the board.

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In a new white paper, The Pension Analytics Group analyzed the effectiveness of the proposed Butch Lewis Act on reducing deficits of multiemployer pension plans.

While the act would enable the plans to continue paying full benefits for an average of 16 years beyond what would be possible without a loan and would significantly reduce pressure on the Pension Benefit Guaranty Corp. (PBGC), The Pension Analytics Group says, it would only temporarily mark the deficits, as opposed to reduce them. “Eventually, taxpayers and the PBGC will face losses associated with the program in the form of Treasury paid-for loan defaults and PBGC assistance payments.”

The Butch Lewis Act would permit loan maturities of 30 years and require plans to invest in low-risk portfolios to hedge their short and medium-term pension liabilities, rather than risky assets. While the act would permit loans to be repaid in 30 years, The Pension Analytics Group says the act would only reduce plans’ insolvency by 16 years because the plans would burn through their assets in that timeframe.

Using 500 stochastic trials, The Pension Analytics Group projects that if no measures are taken to protect multiemployer pension plans, 3.2 million participants will be affected in plans that become insolvent. The Butch Lewis Act would reduce this to 2.3 million participants—still a significant number.

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The Pension Analytics Group estimates that the Butch Lewis Act would reduce the present value of PBGC’s $95 billion in assistance to $33 billion, a reduction by $62 billion. However, the Treasury experiences an average of $43 billion in losses due to loan defaults.

In conclusion, The Pension Analytics Group says that the only option to prevent insolvency of multiemployer pension plans is to implement deep benefit cuts across both young and old plan participants alike. The group estimates that only 10% of the weakest 231 plans are legally permitted to cut benefits. Thus, the organization suggests that the Multiemployer Pension Reform Act of 2014 be amended to permit a greater number of the plans to reduce benefits—and possibly make the cuts a requirement.

“Benefit cuts are painful, but for many weak plans, they are already inevitable,” The Pension Analytics Group says. “It is a merely a question of the timing and size of the cuts. Either an across-the-board benefit cut of between 10% and 30% needs to be implemented right now, or the plans will eventually become insolvent, at which point beneficiaries may receive only cents on the dollar of their accrued benefits.”

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