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Presumption of Reasonableness Standard Does Not Apply at Pleading Stage and SEC Filings Incorporated by Reference in a Summary Plan Description are Fiduciary Communications

Plan participants sued claiming breach of fiduciary duty relating to an employee stock ownership plan (?Ç£ESOP?Ç¥) offered as one investment option in the employer?ÇÖs defined contribution, participant directed retirement plan.?á The trial court dismissed the suit for failure to state a plausible claim for relief.?á The 6th Circuit reversed the dismissal, holding that (1) the presumption of reasonableness standard applied to an ESOP fiduciary?ÇÖs decision to remain invested in employer securities does not apply at the pleading stage and (2) SEC filings, when incorporated by reference into a Summary Plan Description (?Ç£SPD?Ç¥), are a fiduciary communication under ERISA.?á First, the court clarified that the presumption of reasonableness standard is not appropriately applied at the pleading stage because the presumption can be overcome ?Ç£when applied to a fully developed evidentiary record.?Ç¥?á The court reasoned that while ERISA 404(a)(2) generally abrogates an ESOP fiduciary?ÇÖs duty to diversify investments, the fiduciary is not… Continue Reading

Quick Tip: Medical Loss Ratio (?Ç£MLR?Ç¥) Rebate as Compensation under the Retirement Plan

Many employers received rebates from their insurance companies this year under the Patient Protection and Affordable Care Act.?á Any employers that returned all or a portion of the rebate to participants should (i) review the definition of ?Ç£compensation?Ç¥ for their qualified retirement plans to determine whether the rebate amount would be ?Ç£compensation?Ç¥ for purposes of the plan; and (ii) work with their payroll departments or outside payroll providers to ensure that these rebate amounts are properly coded for retirement plan purposes.

Failure to Provide COBRA Election Notice Results in Judgment Against Employer

A former employee who did not receive a COBRA election notice for her dental insurance after she terminated employment was awarded a statutory penalty, attorneys?ÇÖ fees and costs in her subsequent lawsuit.?á After the former employee called the vice president responsible for human resources regarding her missing COBRA election notice, the benefits coordinator was instructed to mail the COBRA notice. ?áThe benefits coordinator, who had been in the position for a few weeks, maintained that she then mailed the COBRA notice but did not have a clear memory of doing so and there was no evidence that the notice was ever mailed.?á The employer?ÇÖs benefits manager and vice president who supervised the benefits coordinator did not follow up to ensure that the notice was sent. ?áThe former employee maintained she never received the notice.?á The court found that it could not credibly conclude that the failure to send the COBRA… Continue Reading

PBGC to Lessen Enforcement of Requirements for ?Ç£Creditworthy Companies?Ç¥ and ?Ç£Small Plans?Ç¥

The Pension Benefit Guaranty Corporation (?Ç£PBGC?Ç¥) recently announced that it is modifying enforcement of the financial security requirement if a company has a plant shutdown that results in job losses by more than 20 percent of the employees participating in the defined benefit plan. Going forward, the PBGC will analyze whether a company remains creditworthy. If the PBGC determines the company remains financially sound, or if the plan has less than 100 participants, the company will still have to notify the PBGC of the ERISA section 4062(e) event, but the PBGC will not enforce the financial guarantee requirement. The PBGC?ÇÖs FAQ can be found here.

IRS Issues Final Regulations Permitting Plan Sponsors to Eliminate Prohibited Payment Options

Under Internal Revenue Code (?Ç£Code?Ç¥) section 436, unless a defined benefit pension plan sponsored by a debtor in bankruptcy is fully funded, the plan may not make ?Ç£prohibited payments?Ç¥ (i.e., lump sum payments or payments in any other form that exceed the monthly amount under a single life annuity). Moreover, the anti-cutback rule in Code section 411(d)(6) prohibits a plan from being amended to eliminate an optional form of benefit. On November 8, the IRS issued a limited exception to the anti-cutback rules to permit a plan sponsor in bankruptcy to amend its plan to eliminate prohibited payments such as lump sums. The exception applies if the following four conditions are satisfied: first, the enrolled actuary certifies that the plan is less than fully funded; second, the prohibition on making prohibited payments arises because the plan sponsor is a debtor in bankruptcy; third and fourth, the bankruptcy court must issue… Continue Reading

#Transparency: Twitter Modifies its DMCA Procedure to Point Out Copyright Complaints

Twitter announced on November 2nd that it was revising its takedown procedures under the Digital Millennium Copyright Act, 17 U.S.C. ?º 512(c). Twitter?ÇÖs new Copyright and DMCA Policy indicates that Twitter will no longer simply delete a tweet that is the target of a DMCA takedown notice.?á The deleted tweet or image will now be replaced by the following statement: ?Ç£This Tweet from @Username has been withheld [or, This image has been removed] in response to a report from the copyright holder.?Ç¥ This change brings Twitter more in line with the practices of certain other online service providers.?á For example, upon receipt of a DMCA notification regarding a YouTube video, Google replaces the video with the message ?Ç£This video is no longer available due to a copyright claim by [copyright holder].?Ç¥?á Not all social media sites conform to this practice, however.?á Facebook, for example, will simply remove infringing content or… Continue Reading

Liability for Fiduciary Breach Not Dischargeable in Personal Bankruptcy

The Department of Labor (?Ç£DOL?Ç¥) sued the president of several related companies to establish his personal liability for more than $67,000 in employee contributions never remitted to the employer sponsored benefit plans and to prevent him from discharging this liability in his pending personal bankruptcy action. Over a nearly three-year period, the companies withheld but never remitted the employee contributions to the companies?ÇÖ group health and 401(k) plans (the ?Ç£Plans?Ç¥). The court concluded that, under ERISA, the president was a ?Ç£functional fiduciary?Ç¥ of the Plans because he exercised discretionary control over plan assets?Çöthe employee contributions?Çöwhen he retained those funds in the companies?ÇÖ general assets to pay other corporate debts, rather than timely remitting them to the Plans as required by ERISA. The president?ÇÖs conduct also violated several other ERISA provisions, including the duty of loyalty, exclusive benefit rule, and prohibited transactions rule. Accordingly, he was personally liable for the unremitted… Continue Reading

Seventh Circuit Holds Employee?ÇÖs Questions are Protected ?Ç£Inquiries?Ç¥ under ERISA Section 510

An executive complained to the company?ÇÖs internal accountants regarding money withheld from his paycheck not being deposited in a timely manner into his retirement and health savings accounts within the time period required by the Employee Retirement Income Security Act (ERISA).?á Over the next few months, the executive made several complaints with other officers of the company, but did not file a written complaint.?á The executive finally received a check to make up for the missed deposits plus interest, but was soon thereafter terminated prior to expiration of his employment agreement.?á The executive filed suit under ERISA Section 510, which prohibits retaliation ?Ç£against any person because he has given information or has testified or is about to testify in any inquiry or proceeding relating to ERISA.?Ç¥?á The district court granted the company?ÇÖs motion for summary judgment and held that Section 510 did not cover the executive?ÇÖs complaints because an ?Ç£inquiry?Ç¥… Continue Reading

Federal District Court Holds that ?Ç£Top Hat?Ç¥ Plan is not an ERISA Plan and Executive?ÇÖs Claims are not Pre-Empted by ERISA

The former president of a credit union service organization (?Ç£Executive?Ç¥) brought several state-law claims for breach of contract and misrepresentation against his employer in connection with an agreement to terminate an Executive Deferred Compensation Plan (the ?Ç£Plan?Ç¥).?á The credit union had been in severe financial distress and had offered to partially vest the Executive?ÇÖs benefit, terminate the Plan and pay the Executive a distribution of $234,068.18 in exchange for his agreement to the Plan termination.?á Before the credit union could pay the Executive, it was placed into conservatorship.?á The conservator repudiated the agreement with the Executive.?á The Executive then terminated his employment and filed suit in Texas state court.?á The credit union removed the case to a federal district court and filed a motion for summary judgment on the basis that the Executive?ÇÖs state-law claims were preempted by ERISA.?á The court analyzed whether the Plan is an ERISA employee welfare… Continue Reading

November 2012