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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

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

NY High Court Holds Fiduciary Insurance Coverage Doesn’t Cover Claims Against Employer as Settlor

The Court of Appeals of New York, New York’s highest court, dismissed the claim IBM made against the carrier of its excess insurance coverage (an excess policy that covered claims in excess of its ERISA fiduciary insurance policy). A class of participants had sued IBM claiming that amendments IBM made to its pension plan were age discriminatory. Participants filed no ERISA fiduciary claims. IBM settled for $319 million. After exhausting the $25 million limit in its underlying policy, IBM turned to its excess policy with Federal which was a “follow form” policy that conformed to the terms and endorsements of the underlying Zurich Policy. The excess policy covered “any breach of the responsibilities, obligations or duties by an Insured which are imposed upon a fiduciary of [a plan by ERISA, other U.S. law or] ERISA equivalent laws in any jurisdiction, [ ] any other matter claimed against an Insured solely… Continue Reading

Federal District Court Holds Puerto Rico Law 80 on Severance Plans Completely Pre-Empted by ERISA

A participant in a severance plan sued her employer for income tax withholding amounts in contravention of Puerto Rico’s Law 80. Law 80 prescribes the amount of severance that must be paid to employees in Puerto Rico and further provides that it is not subject to Puerto Rico income tax withholding. The U.S. Federal District Court held that her claim was completely pre-empted by ERISA because the severance plan in question was an ERISA plan. The court would have had to interpret the terms of the plan to determine whether the severance benefits it provided conflicted with Law 80. As such, Law 80 “related” to the plan and was thus pre-empted. Colon-Rodriguez v. Astra/Zeneca Pharmaceuticals, LP, No. 3:11-cv-01495-FAB (D.P.R. Dec. 13, 2011).

Eighth Circuit Holds One-Person Severance Agreement Cannot be ERISA Plan

In a dispute over severance benefits under an employment agreement, the U.S. Court of Appeals for the Eighth Circuit recently held that an “individual contract providing severance benefits to a single executive employee” could not be a welfare plan subject to ERISA.  Dakota, Minnesota & Eastern Railroad Corp. v. Schieffer, No. 10-2484 (8th Cir. Aug. 11, 2011).  The court reasoned that the use of plural words in ERISA’s definition of “employee welfare benefit plan” indicated that Congress intended “that a covered ‘plan’ is one that provides welfare benefits to more than one person.”  It is unclear whether the Eighth Circuit would apply the same “plural words” reasoning to the definition of “employee pension benefit plan” under ERISA.  The Eighth Circuit’s decision is surprising because it appears to conflict with long-standing decisions by the Fourth, Seventh, and Eleventh Circuits.  See, e.g., Biggers v. Wittek Indus., 4 F.3d 291, 297 (4th Cir. 1993) (holding that… Continue Reading

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