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Bank Is Not Fiduciary and Prohibited Transaction Does Not Occur When Sweeping Funds from Employer Bank Account
The U.S. Federal District Court for the Southern District of Texas dismissed claims that a bank was acting as an ERISA fiduciary when it swept the corporate bank account of a financially distressed employer pursuant to its contract with the employer. The employer had failed to timely remit withheld employee deductions for the health plan to the third party insurer. When the employer entered bankruptcy, the insurer sued the bank under ERISA for the amount of the withheld deductions. The insurer claimed that the bank was a fiduciary and had engaged in a prohibited transaction. The court found that the bank was not a fiduciary because it did not have discretionary control over plan assets nor discretion over administration of the plan. The court further found that the bank did not engage in a prohibited transaction because it did not engage in any transactions with the plan. The transaction in… Continue Reading
Federal District Court Dismisses Fiduciary Liability Claims in BP Stock Drop Lawsuit
The U.S. Federal District Court for the Southern District of Texas dismissed stock drop claims brought against the plan fiduciary for BP’s 401(k) plans. The plans contained employer stock funds that allowed investment in BP American Depository Shares (ADSs). The ADSs incurred a 55 percent drop after the Deepwater Horizon incident in the Gulf of Mexico. The plaintiffs claimed that plan fiduciaries should have divested BP stock because of flaws in BP’s safety programs. In dismissing all claims, the court determined that plaintiffs failed to show that the plan fiduciaries had access to nonpublic information regarding the safety programs, and that the presumption of prudence applied. In re BP p.l.c. ERISA Litigation, S.D. Tex., No. 10-md-2185 (Mar. 30, 2012).
11th Circuit Rules that Modification of a Pension Plan’s Social Security Offset Did Not Violate the Anti-Cut Back Rule
On March 23, 2012, the Federal Court of Appeals for the Eleventh Circuit held that Delta Airlines Inc. did not violate ERISA’s anti-cutback rule when it amended its pension plan to change the formula for calculating a Social Security benefit offset for plan participants who were under age 52 (the plan’s earliest retirement age). The plan’s benefit formula, which was in dispute, “integrated” with Social Security by providing an offset to the plan’s accrued benefit once a participant reached age 52. In ruling that the amendment did not violate the anti-cutback rule, the court held that the amendment did not reduce the participant’s accrued retirement benefit (the accrued retirement benefits had been frozen earlier), but altered how the plan would calculate the Social Security offset for that accrued benefit. Since the amendment only altered the offset formula for participants who were not yet 52, application of the formula depended on… Continue Reading
Summary Judgment Against Participants’ Claims Regarding Inaccurate Benefit Calculation in SPD Affirmed
The U.S. Court of Appeals for the Ninth Circuit affirmed a summary judgment against claims of participants who received summary plan description materials which incorrectly described the calculation of benefits based on the plan terms. Citing the U.S. Supreme Court’s decision in Cigna v. Amara, the court stated that the discrepancy between the summary plan description and the plan document did not create a triable issue, because the summary plan description did not constitute the terms of the plan. The court found that reformation of the plan document was improper because there was no evidence that the plan document contained a mistake or that its terms were induced by fraud. Although Amara suggested that reformation might be appropriate if the employer intentionally misled employees, in this case there was no evidence that the employer materially misled employees, and even if it had misled employees, appellants conceded that they did not… Continue Reading
Sixth Circuit Holds that a Union’s Indemnification of an Employer’s Withdrawal Liability Does Not Violate Public Policy
In a case of first impression, the U.S. Court of Appeals for the Sixth Circuit held that a union’s agreement in a collective bargaining agreement to indemnify an employer for its withdrawal liability under a multiemployer plan does not violate public policy and is therefore enforceable. In this case, the General Drivers, Warehousemen and Helpers Local Union No. 89 specifically agreed in its collective bargaining agreement with Shelter Distribution, Inc. that the union “shall indemnify [Shelter] for any contingent liability which may be imposed under the Multiemployer Pension Plan Amendment Acts of 1980.” The court reasoned that (i) the indemnity was analogous to obtaining a policy from an insurance company to cover any potential liability for fiduciary breaches as described in Section 1110(b) of the Multiemployer Pension Plan Amendments Act; (ii) the indemnity is not a violation of any “well defined and dominant” public policy; and (iii) the goals of… Continue Reading
IRS Provides Guidance on Rollovers from Defined Contribution Plans to Defined Benefit Plans to Obtain Annuities
In Revenue Ruling 2012-4, the IRS provided guidance for employers that sponsor both a defined contribution plan and a defined benefit plan to allow participants in the defined contribution plan to roll over amounts from that plan to the defined benefit plan in exchange for an annuity from the defined benefit plan. Under the ruling, the defined benefit plan does not violate Code sections 411 or 415 if the plan provides an annuity using actuarial factors that are at least as favorable as the applicable interest rate and mortality table under Code section 417(e). The rolled over amounts must be nonforfeitable and the defined benefit plan must not be permitted to accept rollovers if the plan’s adjusted funding target attainment percentage drops below 60 percent. A copy of the Revenue Ruling can be found here.
IRS Uses Section 409A Analysis to Determine if “Retirement” Occurs for Pension Plan Purposes
A multiemployer pension plan, in an effort to permit employees to “retire” under an early retirement benefit before that benefit was eliminated, proposed to let eligible participants “retire” and then immediately return to work. In a private letter ruling, the IRS concluded these employees were not legitimately retired. In analyzing “retirement” for qualified pension plan purposes the IRS looked at Section 409A and other sources. Although Section 409A addresses a nonqualified plan, the IRS stated that Section 409A’s definitions regarding termination and separation from service are consistent with the definition of “severance of service date” under the elapsed time method of crediting service. It also cited a prior revenue ruling that concluded an employee is not separated from service if the employee continues on the same job for a different employer post-corporate transaction. Based on this authority, the IRS concluded that “retirement” requires the employee to stop performing services for… Continue Reading
Maryland Governor Signs Same-Sex Marriage Bill
On March 1, 2012, the governor of Maryland signed the Civil Marriage Protection Act of 2012 into law, thus making same-sex marriage legal in Maryland. The law, which will take effect January 1, 2013, makes Maryland the eighth state to legalize same-sex marriage. Employers with employees in Maryland should review their benefit plan documents to ensure that they will operate in compliance with the new Maryland law beginning in 2013. House Bill 438 can be accessed here.
Denial of Benefits for Former Employee Upheld Where Plan Found No Evidence of Eligibility
A company’s pension plan provided that all salaried employees who met service requirements were eligible for benefits under the plan after reaching age 65. Although the former employee was employed with the company for 20 years and had reached age 65, the plan denied the claim for benefits because the plan’s records did not show the former employee was entitled to benefits and the plan had controls in place to ensure the accuracy and reliability of its records. The Court of Appeals for the First Circuit found the plan administrator’s decision was not arbitrary or capricious or an abuse of discretion because the former employee’s claim was largely based on speculation and hearsay, there was a lack of evidence as to the former employee’s eligibility under the plan, the plan made a demonstrated effort to research the claim, and the plan had plausible explanations for the former employee’s ineligibility, including… Continue Reading
Canada’s Office of the Superintendent of Financial Institutions (OSFI) Publishes FAQs on Letters of Credit
Beginning in April, 2011, sponsors of Canadian pension plans were allowed to use letters of credit in lieu of making solvency payments to a pension plan fund for up to 15 percent of a plan’s assets. In response to the “letters of credit” changes, the OSFI updated FAQs addressing changes to pension funding rules to include new FAQs on letters of credit. The new FAQs can be accessed here.
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