Thoughts on the World's Simplest ERISA Decision: Montanile v. Board of Trustees of the National Elevator Industry Health Benefit Plan

Posted By Stephen D. Rosenberg In Equitable Relief , Settlements
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Interestingly enough, the Supreme Court’s decision last week in Montanile v. Board of Trustees of the National Elevator Industry Health Benefit Plan is about the least complicated ERISA decision any court has issued in years. You know how I know that? The number of posts, tweets and articles published within days by law firms and others addressing it: there were so many, it could not have been a complicated decision to make sense of (for what its worth, I am partial to this post summing up the decision).

And it really isn’t, although partly that is because at this point we all have seen and digested a number of decisions, including out of the Supreme Court, addressing the odd question under ERISA of when a plan administrator can recoup monies from a participant, particularly out of a settlement fund paid to a participant. In Montanile, the plan had paid for the participant’s medical care; the participant thereafter received a settlement in a case he brought over the accident in which he was injured and that gave rise to the need for that medical care; the plan sought reimbursement of the amounts it paid for his medical bills from the settlement; and the participant refused to reimburse the plan and instead went out and spent all the money before the plan could get reimbursed. The Supreme Court, following its prior case law on equitable tracing in this type of a scenario, concluded that the plan was not entitled to reimbursement, because the general assets of the participant were the only funds available from which reimbursement could be obtained and reimbursement could not be obtained out of a dedicated settlement fund traceable to the settlement of the claim.

This outcome must seem silly to lawyers who practice personal injury law and are used to having to pay off workers compensation and other liens out of a settlement, but in the context of ERISA, it’s the natural outcome of the road taken by the Supreme Court in earlier cases in evaluating such claims, where it found that reimbursement constituted equitable relief for purposes of ERISA where the pot of money from which reimbursement was sought was independent of and segregated from the participant’s general assets; the natural corollary to that holding is the holding of Montanile, which is that, in turn, reimbursement isn’t available where there is no such independent fund, because this would mean that reimbursement would have had to come out of other funds and accounts held by the participant, which is not allowed.

I have three points that I want to emphasize about the decision in Montanile. First, as Mike Reilly hinted at in Boom, his blog on ERISA litigation, the practical impact of this decision is simple: if you are a plan administrator, never sit on your hands and instead pursue reimbursement before the participant can squander the settlement fund. This may mean, for instance, bringing an immediate action for reimbursement just as soon as the participant brings suit against a tortfeasor or starts discussing settlement with a tortfeasor, and may require seeking to have a constructive trust placed over the settlement fund -or other equitable relief preventing the dissipation of the settlement fund - until resolution of the plan administrator’s claim for reimbursement. This would maintain the sanctity of the independent settlement fund, from which reimbursement could be enforced, and preclude it from being intermingled with other assets or otherwise dissipated in a manner that would preclude a plan administrator from enforcing a right of reimbursement.

Second, in dissent, Justice Ginsburg pointed out that the decision was correct but, in layman’s terms, silly. (She didn’t actually say it was silly, and instead used fancy legal terminology to make the same point). Justice Ginsburg was driving at the fact that, as noted above, the Court’s ruling is the natural outcome of following prior precedent in this area of the law (namely, concerning equitable relief under ERISA), but that doing so results in the imposition of the wrong rule, one that can only serve to create (unearned) windfalls for participants, increased litigation costs for plan sponsors and administrators who now have to act aggressively through the court system to obtain reimbursement, and increased benefit costs as a result of sticking plans with health care costs that rightly should have been the responsibility of a tortfeasor (and yes, I know that the tortfeasor still ends up paying for them in this scenario when the case is settled, but the fact that those medical costs never get from the tortfeasor to the administrator – and instead get spent by the participant - means that the plan still ends up with health costs it should never have had to bear).

And the third is a personal note, something of which I am very proud but that only true ERISA geeks have understood in the past when I have discussed it. My bio on the firms’ web page, like most experienced lawyers’ web bios, has what I have come to call a humblebrag wall, where a representative sample of cases I have handled is discussed. Like me, you have probably noted over the years that these listings always describe successful outcomes as “representative” examples of the lawyer’s good work over the years, and never seem to include cases that went south on the lawyer. I am no different, and certainly plead guilty to that. But if you look at my representative past ERISA engagements, you will see that one of them is described as “Represented the retired general counsel of a publicly traded financial and insurance company in a dispute concerning claims for reimbursement of excessive pension payments due to company errors in calculation of benefits combined with dispute over interpretation of relevant plan terms.” This was many years ago, and I convinced the plan sponsor to give up on the demand for reimbursement by arguing that the funds had long since been spent or intermingled with other, general assets of the beneficiary, and that the natural outgrowth of the law on reimbursement under ERISA as it existed at that time had to be that there was no legal right on the part of the plan sponsor to enforce reimbursement in the courts under that circumstance. The Court’s opinion in Montanile makes clear, these many years later, that we were always right on this point, and that’s a very satisfying thing.

What Is the Value Added of an Insurance Broker?

Posted By Stephen D. Rosenberg In Industry News , Reinsurance
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What does an insurance broker do, anyway? Many people – even those who run businesses – think of them as simply people who help them place their insurance, and then they forget about them once that annual ritual is finished. But its not quite that simple, and companies who approach risk management from that perspective are both shortchanging themselves and underestimating what their brokers can bring to the table.

I mention this because most think the value added of brokers comes in trying to pin down the nature of a client’s exposures and then proceeding to try to sell that into the marketplace at the lowest price possible. That’s certainly front and center of what a good broker does. But those of us who have worked with insurers, policyholders and brokers for years know that they often bring hidden, more substantial benefits to the table. This article, on Aon’s general counsel, provides a perfect example. While in some ways it’s a personality profile of a prominent in-house lawyer, buried in it is something more important: the story of a reinsurance product that Aon created with Lloyds to bring immediate reinsurance capacity to Aon’s clients. That’s a meaningful value added, and the type of thing that, behind the scenes, a strong broker can bring to a relationship with a policyholder.

Thoughts on Kaplan v. Saint Peter's Healthcare System and the Church Plan Exemption

Posted By Stephen D. Rosenberg In Class Actions , ERISA Statutory Provisions , Employee Benefit Plans , Pensions , Retirement Benefits
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Remember the Church Lady from Saturday Night Live? I have always wondered if she was covered by an ERISA governed retirement plan, or whether her retirement plan was exempt from ERISA as a church plan. I think the answer probably lies in the question of whether her retirement benefits were established and maintained by NBC, or instead directly by her church. I always thought SNL should do a skit on this topic; Chevy Chase would have been hysterical portraying the head of EBSA.

It’s a silly hypothetical, but its an interesting way to think about the Third Circuit’s recent decision in Kaplan v. Saint Peter’s Healthcare System, which is the first appellate decision addressing the recent wave of lawsuits claiming that a number of pension plans that always considered themselves exempt from ERISA on the grounds that they were church plans are, in fact, not church plans and instead are subject to ERISA. The Third Circuit found that such an exemption can only be claimed when the plan was directly established by a church itself, and not by an organization associated with a church. Although the Third Circuit buttressed its interpretation of the language of the exemption itself with other grounds for its ruling, the central aspect of its decision turned on the actual statutory phrasing of the exemption. This focus on the language used in the statute makes the Court’s decision seem straightforward, but it really isn’t; in fact, as the Third Circuit’s decision reflects, the IRS itself has interpreted that same language quite differently for many years.

The Third Circuit’s opinion is a great read, and very persuasive. And yet in some ways, while very compelling, it reads almost as much as a political document – in the sense of being written to persuade an audience – as it does as an inevitable outcome of sharp legal reasoning (which it clearly is as well). The Court provides a very plausible interpretation of the statutory language itself, but if that analysis stood alone, segregated from the supporting arguments relied on by the Court for its interpretation of the church plan exemption that are based on canons of statutory interpretation, on legislative history and on the public policy behind ERISA, that analysis would not be half as persuasive. The proper interpretation of the language in the exemption itself has been hotly disputed in the courts for a simple reason: the language doesn’t perfectly fit either the findings of the Third Circuit, nor those of the courts and parties who argue that the exemption applies more broadly than the Third Circuit found. But the Third Circuit, by buttressing its interpretation with very persuasive arguments that statements in the legislative record and the purposes of ERISA itself support its reading of the church plan exemption, created a heuristic environment in which the panel’s reading of the exemption seems almost inevitable, and in fact practically preordained (get it?).

And yet every student of the political process or experienced appellate lawyer knows that the only thing more malleable than canons of statutory interpretation is legislative history itself. As a result, despite the beautiful, almost cathedral like construction (hope you are enjoying the sustained metaphor as much as I am) of the Third Circuit’s opinion, I am not sold that it is the final word on the question, and would not be surprised at all if one or more other circuits came to an opposite conclusion. I have little doubt that another appellate panel, confronted by the same unclear statutory language, could find support in both legislative history and the public policy underlying ERISA for an entirely opposite interpretation of the exemption.
 

 

Another Case Showing That You Should Not Assume That Your Plan Provider Is a Fiduciary

Posted By Stephen D. Rosenberg In 401(k) Plans , Benefit Litigation , Employee Benefit Plans , Fiduciaries , Third Party Administrators
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Okay, so law blogging evangelist and reformed trial lawyer Kevin O’Keefe is advocating for shorter, more frequent blog posts, and I read his short post on that while I was in the middle of writing a long post for this blog, hopefully to go up tomorrow, on the Third Circuit’s recent opinion on the church plan exemption under ERISA. Amusingly, right when I read Kevin’s post, I had just tweeted a quick one liner on this article – “Court Rejects Excessive Fee Claims Against Principal” - from planadviser about an Eighth Circuit decision that illustrates an important point I often make: service providers to plans employ armies of lawyers whose job is to make sure that their contractual relationships with plan sponsors do not turn them into fiduciaries. Time after time, I find that plan sponsors assume their providers are fiduciaries, but we all know that time after time, they are not, and moreover, that plan sponsors often don’t learn this until a court, during a lawsuit, lets the service provider off the hook on the ground that the service provider is not a fiduciary. This article, and the Eighth Circuit decision it discusses, illustrates this phenomenon perfectly. So I am passing it along, as part of a short post written solely for that purpose, just as Kevin suggested.

Bell v. Anthem, Excessive Fee Cases, and the Economics of Settlement

Posted By Stephen D. Rosenberg In 401(k) Plans , Class Actions , Fiduciaries
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Actuary and blogger John Lowell has a strong post today on the latest high profile excessive fee case filed involving a 401(k) plan, Bell v. Anthem. I will let you read it yourself for the details, but he asks some interesting questions. In one of them, John discusses the borderline nature, at least as it appears at this point, of the claim that the plan could have and should have used lower cost investments. John’s view is that the allegations depict only a minimal difference between the fees actually charged and what, in a perfect world, the fiduciaries might have obtained. John asks if that should be enough to charge the plan’s fiduciaries with a fiduciary breach, asking whether the fiduciaries, even on the allegations, were so close in keeping a lid on fees that they should not be liable for failing to have been, in effect, actually perfect in putting together the investment options for the plan. And the answer to John’s question is that, in fact, the fiduciaries should not be found liable for a fiduciary breach if their process was strong, the plan was well run, the investment options were well investigated, but nonetheless the plan ended up with some investment choices that were marginally more expensive than, in a perfect world, they might have been. As in most things, though, the devil is in the details: to avoid fiduciary liability based on even a relatively small bump up in expense above what was optimal (and remember that, in such a large plan, even a small amount of excess fees, multiplied across the entire plan, add up quickly), the fiduciaries will have to prove those points on the actual record, and we don’t know yet whether they can.

But this in turn leads to another problem for the fiduciaries (or perhaps more realistically, from a realpolitik perspective, for the plan sponsor and/or the plan’s insurers), which is whether the total amount at risk, given the size of the plan, is simply too much for the fiduciaries to ever risk a summary judgment ruling or, even more so, a trial, either one of which could be the final step before an assessment of damages if the plaintiffs are able to demonstrate a fiduciary breach (i.e., that the process had some flaws which resulted in higher than necessary fees) at either the summary judgment stage or a trial. I have discussed elsewhere that some of the large dollar excessive fee settlements that we have seen to date reflect simply defendants buying out the risk of having a large verdict imposed after trial for only a few cents on the dollar, even if those cents add up to millions in settlement. In essence, for a very large plan, the potential exposure if fees are found to be excessive is so large that a settlement that looks large on paper is worth paying to avoid that possible large exposure. And that will be the issue in the Anthem case as well: is the exposure too big to risk a liability finding at some point in the case, requiring that the exposure instead be bought out for tens of millions of dollars, no matter how strong the argument that the fiduciaries did not commit a fiduciary breach?
 

What the Disqualification of an ESOP Illustrates About ESOPs In General

Posted By Stephen D. Rosenberg In ESOP
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Here’s a great little story by lawyer and blogger Jeffrey Cairns on the IRS disqualifying a professional practice’s ESOP based on significant operational defects, not the least of which was a failure to comply with the plan’s terms concerning eligibility. I like the post because it lays out the nature of the ESOP, the defects, and how those defects led to disqualification clearly and carefully. Often, stories about these types of events tend to speak in broad generalities, or else take the disparate problems in a particular ESOP and the multiple causes of a disqualification and treat them as one undifferentiated mass. Cairns doesn’t do that here, and instead explains exactly what errors were made that led to the disqualification.

The reason the story caught my eye – beyond its clarity – is that it relates to a point of contention I often find myself in with lawyers and financial advisors who tout the wonders of the ESOP form. ESOPs certainly have their place, and can, when used correctly and with the right intentions on the part of a company’s owners or founders, be a very important tool. I have found over the years, however, that some ESOP advocates, and especially lawyers who defend them against suits by participants or regulators, sometimes seem to have a “see no evil” approach to ESOPs and to treat all criticisms of the form as illegitimate. I have always thought that this view goes too far. It has always been my opinion that ESOPs are wonderful in theory, but in practice, they are only as good as both the intentions of those who found them and the competency of those who run them. When ESOPs are put in place properly, run competently, and installed with the interests of the plan participants at heart, they are a wonderful thing. However, as the case of disqualification depicted in Cairn’s post reflects, this isn’t always the case. No matter what promoters of that corporate form argue, ESOPs are not the be all and end all unless they are run right and with the right intent. Cairn’s story of the disqualification of one small firm’s ESOP well illustrates that point.

Top Ten List Of Things From 2015 That Are Somehow Related To ERISA And My Practice

Posted By Stephen D. Rosenberg In Class Actions , ERISA Seminars and other Resources , Equitable Relief , Fiduciaries , Interviews , People are Talking . . . , Summary Plan Descriptions
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Like many, I took some time off over the holidays. Unlike many, who used the time to do fun things like go skiing, I used the time to sit down with three fingers of my favorite small batch craft brewery bourbon and write a top ten list for my blog. Here, without further ado, is my top ten list of things from 2015 that are somehow related to ERISA and my practice:

1. Favorite 2015 movie about ERISA and employee benefits: Concussion. Although not really about employee benefits and ERISA, its genesis is: see my series of blog posts on the NFL’s effort to avoid granting disability benefits to the great Steelers center, Mike Webster (here, here and here). The real story behind the NFL’s attempt to avoid responsibility for CTE and head injuries harkens back to the courage of Webster’s family and the talent of their lawyers, who took on the NFL and its constant stonewalling on the issue, and won.

2. Most enjoyable city I had never been to on a business trip before: I had an absolutely fascinating two day trip to Richmond for a deposition; what a great city. From the international cycling championship it was hosting while I was there, to the history of alligators in the lobby of the Jefferson Hotel, to the hip downtown neighborhoods with cobblestone streets, to the great meal I had at Lemaire, more was packed into a 30 hour stay than I could have imagined. As a civil war and colonial history buff, being able to squeeze in a walk around the Thomas Jefferson designed capitol (with great commentary from a park ranger I chatted with) and seeing the Jeb Stuart and Robert E. Lee monuments (on the advice of a helpful hotel concierge), the whole trip was a blast. Provoking the other side’s expert into answering a question at his deposition with the one word reply “Duh” just made the whole trip even more fun.

3. Best business meal (excluding meals with clients, so I don’t leave anyone out): Dinner at BLT Prime in New York, with two of my fellow speakers on a panel on fiduciary governance, Al Otto of Shepherd Kaplan and Peter Kelly, the Deputy General Counsel and Chief Employee Benefits Counsel of the Blue Cross Blue Shield Association. Great food and high level conversation that would only appeal, I have to admit, to an ERISA geek.

4. Most satisfying judicial decision (personal case load division): After approximately five years of litigation, including a week long jury trial, convincing the Pennsylvania Superior Court (for those of you not familiar with that state’s court system, the Superior Court is its intermediate appellate court) to not just reverse a $1.4 million verdict against my client, but to also enter judgment in favor of my client. Its one thing to win an appeal, but, as all trial and appellate lawyers know, its hard enough to flip a jury verdict on appeal, but to actually get a jury verdict reversed outright (in favor of entry of a JNOV) is a rare event indeed.

5. Most unsatisfying judicial decision (non-personal case load division): Tibble v. Edison, by the Supreme Court this past summer. As I discussed here, it rendered the whole appellate history of the case much ado about nothing from a jurisprudential perspective.

6. Most interesting ERISA decision that flew under the radar: Osberg v. Foot Locker, Inc., 2015 WL 5786523 (S.D.N.Y. Oct. 5, 2015), which attracted comparatively little discussion, given the depth of the Court’s analysis and that it was issued by one of the country’s most respected courts. What I liked most about it was that it emphasized the fact that plan communications are, contrary to what many believe, a central part of fiduciary responsibility. To quote the Court, “[t]he most important way in which the fiduciary complies with its duty of care is to provide accurate and complete written explanations of the benefits available to plan participants and beneficiaries.”

7. Best presentation I attended: A tie between two panels of magistrate judges, each discussing issues involving ERISA, discovery, spoliation and the amendments to the federal rules; the first was at ACI’s Chicago installment of its ERISA litigation conference in April 2015, and the second at ACI’s New York ERISA litigation conference in October 2015. At the former, I had asked the panel a question which led to a conversation afterwards with a magistrate judge from out west on the subject of spoliation and exactly the effect he believed the changes to federal rules would have on that issue. At the latter, a diverse group of judges held court (pun intended) on topics ranging from when discovery in benefit claims should be allowed to whether – and if so to what extent - the changes to the federal rules, despite all the effort put into them, would actually alter day to day discovery practice and litigation.

8. Best selfie (written version): Chris Carosa of Fiduciary News’ interview with me, which you can find here. Lot of fun, as Chris always has his finger on the pulse of the industry and thus both asks the important questions and elicits informative responses (and not just spin or marketing drivel).

9. (Probable) First line of my (professional) obituary: Named one of the nation’s top 15 ERISA lawyers in 2015 by the National Association of Plan Advisors.

10. Best Article I wish I had Written but That I am Not Funny Enough to Have Written: “Declarations: The Coverage Opinions Interview With The Grinch Who Stole Insurance - A Career Spent Denying Santa’s Claims.”

And with that, Happy New Year everyone.
 

What Can a Chief Retirement Officer Do for You?

Posted By Stephen D. Rosenberg In 401(k) Plans , Benefit Litigation , Class Actions , Employee Benefit Plans , Equitable Relief , Fiduciaries , Pensions , Retirement Benefits , Settlements
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This is so simple, its brilliant, and so brilliant, its simple – or something like that. The “this” I am talking about is the idea of appointing a Chief Retirement Officer, or CRO, as is discussed – and proposed – in Steff Chalk’s article, “The Advent of the Chief Retirement Officer,” in the latest issue of NAPANet. Essentially, he proposes that companies appoint a senior officer with overall responsibility for retirement plans, whether they be pensions, 401(k)s or what not. CROs would have responsibility for the types of issues that bedevil plans in the courtroom, such as overseeing revenue sharing and fees, as well as for the type of operational issues that often invoke fiduciary liability and equitable relief risks, such as the communication errors in Osberg. The brilliance and the simplicity of the idea stem from the exact same data point: it is the lack of knowledge, lack of interest, lack of time and lack of concern by company officials appointed to committees overseeing retirement plans, and who are just moonlighting in that role from what they consider their real jobs (like CFO, etc.) that are the cause of an awful lot of operational failures, litigation exposures, fiduciary liability risks and large settlements in the world of retirement plans.

I spoke and blogged recently about the nature of fiduciary liabilities in plan governance operations, and the theme of both my speaking and writing was the fact that officers overseeing plans are often shoehorning that work into the cracks in their otherwise busy schedules. By this, I don’t mean to suggest anything malevolent, or even intentional. Rather, it is just a fact of life. Counsel to plans are not loathe to note that they have to make a call as to how much of a governance committee’s limited time to tie up with a particular issue. Moreover, court decisions reflect that fiduciary breaches are often based on actions taken with limited discussion, limited knowledge and with a limited investment of time. When I say this, bear in mind that I am talking about cases that are litigated to at least the summary judgment stage, providing a factual basis for a court to find such facts; as a result, the cases I am describing are outliers, rather than a representative sample. Nonetheless, they still reflect the fact that it is the lack of expertise and the insufficient investment of human capital at the highest level of a plan sponsor that is often at the heart of fiduciary liabilities. Indeed, it is hard not to think of a major decision that ran in favor of participants in this area that did not have, among its factual bases, at least some evidence that those making the challenged decisions were ignorant about a key fact or important element of the investment world: think, for instance, of the key role in Tibble of the lack of knowledge about the nature of retail and investment fund choices.

And that’s the beauty of the CRO idea: the assignment of duties related to retirement plans to one individual who not only has the expertise to do the job well, but also has that as his or her only assigned job duties. If the nature of a fiduciary breach is found in an imprudent process – and it is – the assignment of such duties to a properly selected and qualified CRO with the time to do the work is a walking, talking barrel of evidence that a prudent process existed.
 

 

On the Human Element in Plan Governance, Officiating and other Human Endeavors

Posted By Stephen D. Rosenberg In 401(k) Plans , ERISA Seminars and other Resources , Employee Benefit Plans , Fiduciaries , Long Term Disability Benefits
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I have been thinking, more than is probably healthy, about all the hue and cry over refereeing errors in pro football, particularly on the questions of, first, whether there are more errors than there used to be (or whether instead it just seems that way) and, second, why I don’t really care, despite every other sports fan I know getting all up in arms about it. First off, lets set the stage, and narrow down what we are talking about here. The pro football world, from twitter to mainstream media, is all focused on officiating errors among pro football referees, and even more on the bizarre sight of endless, play stopping conferences among officials who are meeting to try to figure out the latest officiating faux pas (I have to say, judges decide complex evidentiary issues in the middle of a trial, on the fly, with much more of real meaning at stake, much quicker than it ever takes a bunch of football refs to figure out something that, once the game is over, really doesn’t have any lasting significance).

I don’t remember officiating being such an issue in the past, and I have been watching football since, well, never mind . . . Suffice it to say, I remember watching Mike Webster play center for the Steelers, long before he became the centerpiece of a professional interest, namely his central but extremely sad role in a fascinating piece of ERISA LTD litigation against the NFL over head trauma, which occurred long before head trauma in football became a national issue (you can find one of my posts on it here). Is officiating worse now? Is the game more complicated and the refs now can’t keep up without making endless errors and needing endless conferences? One would think so, from everything you read about it and all the truly absurd conferences among officials during games. But I don’t think that’s the case at all, and instead its more like what happens when the medical community begins to focus on, or develops a new test for, a particular illness – that illness doesn’t actually become more prevalent in the population as a whole, but instead is simply diagnosed more often. And I think that’s the story here – refs have become a focus of attention, and now everybody is paying endless attention to every mistake they make, whereas in the past most would have been ignored. (I mean, really, does anyone actually care that a game between the 3-7 Ravens and the 4-6 Jaguars ended on a blown call?)

When I played high school sports (as an ERISA geek, I feel obliged on occasion to remind people that I also have five high school letters in two sports), we were always told not to complain about the refs after a loss, that they had almost certainly fouled up calls against both teams, and that they were never the real reason for a loss. Today, with the obsession on trying to expand instant replay across sports to take the human element, along with its concomitant inevitable errors, out of officiating, we seem to have lost that belief, replacing it instead with an obsession over officiating, with the inevitable outcome that now, all we seem to talk about is the refs and all we seem to watch is refs meeting in the middle of the field to decide what the call should be. Perhaps we would all be better off if we just admit that sports are a human activity, that human error is therefore inevitable, and, since we are not talking about a moon launch here, that is just fine. Certainly, watching the games would be a lot more fun if the refs just ran over, made a call, didn’t worry about being overturned by the “eye in the sky” of instant replay, and then we all moved onto the next play, rather than stopping everything so we can all watch a bunch of zebras huddle up.

More importantly, though, I have been thinking about why this issue has been bothering me so much, like a little pebble stuck in my shoe, and last week, speaking at ACI’s Employee Benefits Plan conference in New York, the reason dawned on me: it’s the belief that, if we just impose enough technology – like instant replay – we can take human error out of human endeavor, which is nothing but a chimera. I was speaking at the conference on the subject of fiduciary liabilities that arise out of errors in plan governance (you can find my slides here), and I was discussing that the nature of fiduciary liability under ERISA in a lot of ways can be reduced, in plain English, to the question of whether an investment committee or other group running a plan had acted as a reasonable, intelligent, informed, experienced person would in running the plan. As I explained to the audience, which was made up of lawyers who counsel and run such plans, if the company officers involved in plan management think of their role this way, and apply this standard to themselves, they will significantly reduce the likelihood of being sued and, if sued, reduce significantly the likelihood of being found liable at the end of the case.

I also talked about the importance of accurate communications and never appearing to sandbag (whether intentionally or unintentionally) a participant, whether outside of a formal claim or as part of a claim process. I talked about the fact that errors in plan communications are becoming a cutting edge basis for imposing fiduciary liability to an extent previously unseen (see, e.g., Osberg, discussed here), and also that poor habits in this regard in plan governance can simply be the straw that breaks the camel’s back and provokes a participant to sue, in situations where the participant might otherwise have skipped going to court.

And at the end of the day, the central element of all of these (and many other) issues with regard to ERISA plans is that we are dealing with humans here, not robo-advisors or whatever else (like target date funds, for instance) that people want to think can take the messiness out of plan governance, pension investing, 401(k) decisions and the like. Instead, like officiating in sports, plan governance cannot help but have human error baked in, which is why, if you get to the heart of it, ERISA litigation doesn’t focus on the outcome of plan governance but instead on the process of how the outcome came about: was there too much human error, or was enough effort and thought put into the process that brought about the outcome? Fiduciary liability under ERISA resides right at the heart of that question, and in the answer to it in any given case.

Nothing's Ever Simple in the World of ERISA: Montanile v. Board of Trustees of the National Elevator Industry Health Benefit Plan

Posted By Stephen D. Rosenberg In ERISA Statutory Provisions , Employee Benefit Plans , Equitable Relief
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Here is a wonderful analysis – which manages to both review its past and guess intelligently at its future - of Montanile v Board of Trustees of the National Elevator Industry Health Benefit Plan, the latest Supreme Court case to try to determine the scope of equitable remedies available under ERISA. Montanile, scheduled to be argued on November 9, is yet another case trying to establish the rules as to when a plan can recoup, out of a participant’s litigation recovery, the medical expenses it paid for the participant. Any experienced personal injury lawyer, whether plaintiff or defense side, will tell you that repaying most liens out of a recovery is a no-brainer, something that is accepted as a matter of course, but these usually involve workers compensation liens. What complicates the scenario here is, quite simply, ERISA, something which many lawyers who don’t practice in the area would insist always complicates things. More specifically and precisely, what complicates this particular case is the fact that the medical expenses were paid by an ERISA governed plan, and the recovery was spent by the participant without first repaying the expenses to the plan. ERISA complicates the question of whether the plan is entitled to repayment because, first, ERISA provides a limited group of remedies and the claim for repayment must be shoehorned into them if it is to succeed, and, second, ERISA pulls in historical concepts of equity jurisprudence for purposes of making this decision.

The fact that these two factors may alter an otherwise expected right to reimbursement is somewhat ironic here, in a what’s sauce for the goose is sauce for the gander kind of way. These elements –the limited remedies available under ERISA and the tight limitation on equitable remedies in the ERISA context – have long complicated participants’ ability to recover from plans and fiduciaries; now, here, they complicate a plan’s ability to recover from a participant.