Benefits Monthly Minute
The October Monthly Minute highlights two recent retirement plan cases, one in which the court sides with the plan and emphasizes plan administrative review over specific investment results and another where plaintiffs are given the green light to move forward in a pension offset case due to unclear SPD language, as well as a brief survey of tobacco surcharge litigation and the potential impact of the Supreme Court’s Loper Bright decision.
In a Quest to Beat 401(k) Class Action, Court Values Process Over Results
A New Jersey court recently kicked out a proposed class action alleging breach of fiduciary duties and failure to monitor in connection with the maintenance of certain funds (the “Challenged Funds”) within a 401(k) plan’s overall investment lineup. In reviewing plaintiff’s claims, the Court examined the role and sufficiency of the Investment Committee (the “IC”), specifically, the extent to which outside advice was sought, the frequency of IC meetings, and the preparation of meeting minutes. The Court also evaluated the plan’s investment policy statement (“IPS”) which included qualitative and quantitative factors to consider when selecting and monitoring investment options, noting that no single factor is determinative. As well, the IC’s monitoring process of the Challenged Funds, which included reference to outside consultant review and recommendations and the IC’s search for potential alternative as market conditions changed, was also reviewed. In deciding to grant summary judgment in favor of defendants, the Court emphasized the importance of a fiduciary’s administrative process over the ultimate results. The fact that the IC received annual fiduciary trainings (which covered topics such as selecting, monitoring and changing investment managers) and kept records of its meetings with clear meeting minutes (noting attendees, approval of prior meeting minutes, fund reviews and legal updates) were critical in the Court’s decision.
KMK Comment: This case emphasizes the importance of solid administrative processes when defending against participant challenges to 401(k) fund lineups. Regular fiduciary meetings, diligent trainings, fund monitoring and plan review, with the assistance of outside counsel and consultants, can help to ensure ERISA compliant plan administration and avoid unnecessary and protracted litigation.
Convoluted SPD Language Paves the Way for Pension Plan Plaintiffs
In Baleja v. Northrop Grumman, plaintiffs alleged that defendants (to wit, the pension plan, the plan’s administrative committee, the employer, and others) breached their fiduciary duties by failing to sufficiently disclose a pension offset and its effects. In reviewing the lower court’s October grant of summary judgment, the Ninth Circuit evaluated pension plan summary plan descriptions from 1985 to 2014, and concluded that genuine issues of material fact existed regarding whether defendants breached their fiduciary duty of disclosure by failing to reasonably and accurately apprise former employees of their rights under the ERISA plans. In reversing the district court's ruling and remanding for trial, the Ninth Circuit remarked that “a jury reasonably could conclude that Defendants reasonably apprised the former ESL employees of the effect of the offset. Alternatively—particularly because summary plan descriptions ‘must 'be written in a manner calculated to be understood by the average plan participant,’ […] a jury reasonably could conclude that defendants' confusing, convoluted, and misleading communications failed to meet ERISA's disclosure requirements.”
KMK Comment: It’s no surprise that pension plan SPDs will be scrutinized when defending against aggrieved plaintiffs’ breach of fiduciary duty claims (particularly where pension offsets are at issue). For this reason, it’s important to ensure that SPD language is accurate as well as understandable, and to maintain records of historical SPDs. But, where SPD language is unclear, contemporaneous indicia of intent can offer clarity and support the plan administrator’s ultimate determination should it be subject to review. In this regard, accurate and simple meeting minutes of fiduciary meetings should reflect key decision-making points and overall objectives.
Can Loper Bright Douse the Flames of Smoker Surcharge Litigation?
Over a year ago, the September 2023 Monthly Minute reported on an Illinois district court case, Su v. Flying Food Group (N.D. Ill. Aug. 30, 2023), wherein the DOL disputed the imposition of a tobacco surcharge on health plan participants given the lack of a reasonable alternative standard (RAS) as required by HIPAA nondiscrimination regulations. Since that time, this topic has been a hotbed for litigation. Numerous class action lawsuits have targeted tobacco/smoking surcharge programs. Cases include litigation across circuits and industries, including Compass Group (W.D. Missouri Oct. 2024), Sedgewick Claims Management (W.D. Tennessee Oct. 2024), Pepsico Inc. (S.D. New York Oct. 2024), Tractor Supply Co. (M.D. Pennsylvania Sept. 2024), and Walmart (E.D. Wisconsin Sept. 2024). Pushing the smoking surcharge litigation envelope further is the Chirinian v. Travelers case, filed October 17 in Minnesota, in which plaintiff alleges deficient communication and administration of its smoking cessation program in violation of the applicable regulations. Tobacco surcharge programs have also been a focus for the Department of Labor which recently filed a case against Flying Food Group in 2023. Interestingly, however, an earlier tobacco surcharge case the DOL brought against Macy’s is now being re-considered under the Loper Bright decision. As reported in the July Monthly Minute, the Loper Bright Court held that courts must exercise independent judgment in deciding whether an agency has acted within its authority, and may not defer to agency interpretation of the law simply because a statute is ambiguous. Macy’s contends that the HIPAA wellness regulations reviewed in light of Loper Bright are inconsistent with ERISA 702(b) (the HIPAA nondiscrimination rule). Consequently, the district court is requiring “full consideration” of this question by the parties. It remains to be seen whether the Court will agree with Macy’s and dismiss the case.
KMK Comment: The Macy’s case review under Loper Bright is exciting, and could potentially upend the tobacco surcharge litigation trend. However, the instant proliferation of class actions and DOL inquiries is still concerning and should send a clear message to self-funded plan sponsors to carefully examine the administration and documentation of smoker/tobacco surcharge programs. While these rules are not new, errors are common. Tobacco surcharge programs that include a quit requirement, do not offer a RAS, offer only prospective or partial surcharge refunds, and/or fail to satisfy notice requirements should be scrutinized with counsel. It is important to have wellness programs reviewed for compliance with these rules.
The KMK Law Employee Benefits & Executive Compensation Group is available to assist with these and other issues.
Lisa Wintersheimer Michel
513.579.6462
lmichel@kmklaw.com
John F. Meisenhelder
513.579.6914
jmeisenhelder@kmklaw.com
Antoinette L. Schindel
513.579.6473
aschindel@kmklaw.com
Kelly E. MacDonald
513.579.6409
kmacdonald@kmklaw.com
Rachel M. Pappenfus
513.579.6492
rpappenfus@kmklaw.com
KMK Employee Benefits and Executive Compensation email updates are intended to bring attention to benefits and executive compensation issues and developments in the law and are not intended as legal advice for any particular client or any particular situation. Please consult with counsel of your choice regarding any specific questions you may have.
