What Does Retaliation under ERISA Look Like?
What’s worse than playing games with your employees’ retirement savings? Well, probably not much, from both a moral and legal perspective. The heavy hand of the plaintiff’s bar, and possibly the Department of Labor, will come looking for you if you do.
But one thing that makes such an event worse for a plan sponsor or fiduciary, from a legal and liability perspective in any event, is retaliating against the employee who ratted you out in the first place. This is because ERISA includes an anti-retaliation provision, section 510, by which a plan participant can sue for damages if retaliated against for seeking to recover, obtain or protect his or her benefits under an ERISA governed plan.
Now, in my experience, participants in a plan who have been engaged in long disputes with a plan administrator over benefits or plan administration often come to believe that they are being targeted by a hostile administrator in response and are therefore being retaliated against. In some cases, those participants are right in their perceptions. But contrary to what many participants caught in that scenario may believe, they are almost never sitting – despite what complaints, often legitimate, they may have about the conduct of a plan sponsor or administrator – on a viable claim for retaliation under ERISA. Instead, a viable cause of action under ERISA for retaliation requires, to succeed, a strong linkage between a job action or other harmful decision and the participant’s request for benefits or effort to protect those benefits. Most of the typical disputes that go on day after day between participants and plan administrators don’t rise to this level, no matter how it feels to the particular participant trapped in the dispute.
Instead, a viable ERISA claim for retaliation looks much more like the facts of this case, in which the Department of Labor recovered several hundred thousand dollars in back pay and other damages for a trio of employees and plan participants who blew the whistle on malfeasance by a plan fiduciary and cooperated with a federal criminal investigation. As Planadvisor summed up in an article on the case:
Prior to her termination, Robbins complained internally that Scott Brain, a trustee and business manager for Cement Masons Local Union 600, was violating the federal Employee Retirement Income Security Act (ERISA). In 2011, she cooperated with a federal criminal investigation into Brain’s activities. Upon learning of her cooperation, the joint board of trustees voted to place Robbins on administrative leave, until such time that her department was outsourced.
Later, "when the company outsourced Robbins’ department to a third-party administrator, Robbins was the only employee not retained by the new employer."
Now that’s retaliation in violation of ERISA. And from the perspective of a plan sponsor or administrator, that is just plain making a bad situation worse.
Defensive Plan Building, Otherwise Known as "Minimizing Legal Risks in the Design, Implementation and Administration of Employee Benefit Plans"
I can’t even recall how many times I have written – on this blog and elsewhere – on what I call “defensive plan building,” which is the idea that plans should be designed, built out and operated with the risk of litigation and liability exposure carefully considered and planned for, with the goal of eliminating as many risks as possible. The idea is to think - not after being sued but when a plan is written, a vendor selected, funds chosen, an investment committee put together, and the like - how best to limit the liability risks of the plan sponsor and the plan’s fiduciaries.
Here’s an easy example. A couple of weeks ago I spoke on a Strafford webinar on the duty to monitor plan investments after the Supreme Court and the Ninth Circuit’s rulings in Tibble. One of my slides concerned a favorite topic of mine, which is the risk of corporate officers who are not directly involved in a plan’s operations being dragged into a dispute over the plan on the ground that they are functional fiduciaries of the plan (how this can happen, how it can be avoided, the status of the law on this issue under a wide variety of fact patterns, and the creativity of plaintiffs’ lawyers with regard to this issue are a subject for another day, one that perhaps warrants an entire article). Often, such officers and executives were not directly involved with the plan and, moreover, did not understand themselves to be occupying a role that could expose them to liability for the plan’s operations based on a claim that they were functional fiduciaries. As I explained in my presentation, getting dragged in this tangential way into class actions brought against a plan is not a good use of a senior executive’s time and focus, and likely not good for the longevity of the lawyer who designed the plan in a way that left a senior officer at risk of being named a defendant in such a claim. The point of “defensive plan building” is to look ahead at risks like this and design the plan in such a way that this doesn’t occur by accident, by insulating such senior officers from involvement that could drag them in as defendants. Multiply this by a thousand fold, concerning all of the other exposures that a plan can bring, and you have the idea of “defensive plan building:” look ahead when building and operating a plan at your potential exposures, and avoid the ones you want to avoid.
Now this is all nice as a theory, but there is no doubt it is hard to pull off. Plans are amazingly complicated machines, with a thousand moving parts. Worse yet, new theories of liability arise all the time, and one cannot predict whether certain actions taken today will run afoul of theories of liability crafted in the future. Just look, for instance, at excessive fee cases: the cost of funds certainly wasn’t on the radar screens of most plan sponsors and their lawyers several years ago, but it would be negligent of them to ignore those costs in designing a plan today.
I will have more of an opportunity to expand on this idea in November, when I will be speaking at the American Conference Institute’s conference on plan compliance issues in New York. The actual title of the conference is “Minimizing Legal Risks in the Design, Implementation and Administration of Employee Benefit Plans,” which could almost serve as a definition for the term “defensive plan building.” Peter Kelly, who is the Deputy General Counsel of Blue Cross and Blue Shield Association, Ed Berrios of Chubb and I will be speaking as a panel on fiduciary liability and employee benefit risks, and dozens of others will be speaking on a range of other issues central to operating a well-run plan. If you are interested in attending, you can get a special bargain by contacting Joe Gallagher at the American Conference Institute by the end of the month, at 212-352-3220 x 5511 or email@example.com, and mentioning my name.
The Problem with Providing Group Life to Employees
Robert Wood, in Jackson Lewis’ Benefit Law Advisor, asks – and implies an answer to – the simple question of whether group employee life policies and plans are worth the risk for mid-size and smaller employers. He points out that conversion and related rights granted by such plans to employees place a significant administrative burden on employers that, if performed poorly, can give rise to fiduciary liability. Having litigated such cases, I would second his thought, which is why I am passing along his post. There are certain features of such group policies, related to the rights of employees to convert the group coverage to individual coverage, that are difficult for employers to administer successfully, and about which they are often relatively uninformed. As a result, they may find themselves exposed to fiduciary liability based on a plan benefit about which they knew little and/or which they were ill prepared to administer.
I am not saying that smaller employers shouldn’t provide such benefits; benefits are important, including group life. Indeed, I have lost track of the number of benefit cases in which I have been involved where the only life insurance available to a surviving spouse was that provided by the deceased spouse’s employer. What I am saying, though, is that if an employer is going to provide that benefit, they need to understand exactly what it provides and proactively plan for how the employer is going to administer that benefit. Learning about the complexity of that particular form of benefit only after the fact is a recipe for an employer to incur fiduciary liability.
Follow the Money: What Happens to the Proceeds of Class Action Settlements
When you read in the paper about a large settlement in an excessive fee case or other claim involving a 401(k), ESOP or other ERISA governed plan, do you think about what happens next, and about how to distribute the money among the plan participants? I do, in cases where I have represented the class, but also in cases where I have defended the plan or its fiduciaries. As this article from Plan Advisor discusses, there are a lot of issues that go into deciding how to distribute the settlement among current plan participants and those who have left the plan. The article gives a good overview, and drives home a key point: there is a lot of complexity behind the scenes in figuring out how to distribute the money, which the media, reporting on the large figures of the settlement itself or on the large award to class counsel (which are both sexy subjects), tend to ignore or simply be unaware of, because it just isn’t that interesting to the public as a whole. But in real life, this part of a settlement is crucially important, and creates a fair amount of work for those who administer class action settlements and those who administer plans themselves.
Here are a few things I have observed and lessons I have learned over the years. First, the class definition in the litigation and which is used by the court in approving the settlement is hugely important. In class action litigation involving these types of plans, the class of affected participants is typically defined by the litigants and eventually approved by the court. If the parties and the court really focus on the definition, its terms can provide a great deal of guidance to the administrator with regard to exactly which current and former plan participants should receive distributions. Often, though, the class may have been superficially defined, in a manner that the lawyers feel will be sufficient to win court approval, but which may not, in fact, be precise enough to guide distribution of the proceeds and provide real guidance in that regard to the plan administrator. A focus on this issue by the lawyers negotiating the terms of a class action settlement can make a real difference when it comes time for the administrator to do the hard work of allocating the settlement proceeds.
Similarly, settlement documents in a class action, negotiated by the parties as part of closing a deal and obtaining court approval of the settlement, are usually replete with detailed explanations of as many facets of the settlement as the lawyers for both sides can think to cover. This is often, I hate to say, more often due to self-interest of the lawyers involved than to any higher motivation, as a detailed, comprehensive explanation of the settlement is often crucial to winning court approval of the settlement and to defeating objectors to the settlement who are part of the settlement class. There is nothing wrong with that per se, in that the class action system, with its awards of attorneys fees out of settlement proceeds and the checks and balances imposed by court oversight, is designed both to be driven by self-interest and to tamp down its unchecked excesses (I should note here that unlike many of its critics but like many of those who, like me, actually toil in the orchards of class action litigation, I find that this aspect of the system works pretty well in the vast majority of cases). A focus in these papers on settlement allocation – perhaps by including a subsection expressly directed at describing allocation of the proceeds in as exquisite of detail as possible - can greatly aid the administrator later on in distributing the settlement proceeds.
Seeking Shelter from the Storm: the Washington Post on Retirement Readiness
Well, I am not sure how much new there is in this Washington Post article, “A Retirement Storm is Coming,” but I liked it nonetheless. It’s a good story on the problems in retirement financing people face and possible solutions. What I liked most about it are a few points. First of all, people cannot hear often enough that most of them are going to be on their own when it comes to retirement finances; too many people think that social security, the tooth fairy, or pensions of the types their parents had (but not they) are going to finance their retirement, when it is likely that none of these are any more likely than the next to do so. I lump social security in with two things that are seldom spotted – the tooth fairy and pensions – in this regard because, as the article points out, financial realities make it ill-advised for anyone mid-career or younger to assume a particular amount of social security payout in projecting retirement incomes.
I also like the article’s rejection of two things that are, in essence, wishful thinking by many future retirees – that traditional, private employer pensions will come back into vogue or that government programs will be created to solve the retirement crisis. As the author makes clear, the former isn’t coming back, ever, and the latter, given the political climate, is a barely more likely occurrence.
The author looks at these points and comes to the only conclusion that anyone weighing the evidence could come to: that each worker is responsible for his or her own retirement finances, and will have to self-finance retirement. This means a couple of things. First, people should not even begin to think they either can, will, or should be retiring in their early to mid-60s. Even leaving aside the question of whether it is a healthy thing for a healthy person to do, the finances won’t support it for almost every member of the 99%: the time in retirement that needs to be funded will, knock on wood, be too long for most people.
Second, successful retirement investing while working is crucial, and this makes the focus on the costs in 401(k) plans and the risk of conflicted advice by financial advisors important. Anything that makes it more likely that a working person saving for retirement will end up paying more than is necessary for a return on investment that is lower than it should be makes it even harder for people to prepare for retirement. This point could drive an article all on its own, covering topics ranging from fee disclosures mandated by the Department of Labor, to the proposed new definition of fiduciary, to class action litigation over the costs of investment options in 401(k) plans. A topic for another day, but for now, I wanted to pass along these macro level thoughts on the Post’s article.
(By the way, did you catch the allusion in the title of this post? Its our musical moment for Monday).
Baseball, Hot Dogs and Class Action Lawyers
One of my favorite kid friendly, safe for work jokes:
Q: Moose walks into a bar. What’s he say?
If you like that one, how about this one:
Q:Woman buys an expensive seat at the ballpark. What’s she say?
A: Get me a class action lawyer!
And if you like that one, you will like my pal Randy Maniloff’s (even if he did blow me off for dinner the last time I was in Philadelphia) Op-Ed piece in the Wall Street Journal this past weekend on the Oakland A’s ticket holder and her lawyer who have filed a class action suit against Major League Baseball alleging that protective netting should be installed the length of the baseline seating in ball parks. Now, I am not one to make fun of lawsuits by referencing the old saw about the woman who was burnt by McDonald’s coffee and received a large jury verdict afterwards, which tort reform people always try to use to support their claims that we need to crack down on plaintiffs and their lawyers; as I have discussed before, if you look behind the self-serving rhetoric about that case, you find that it doesn’t actually demonstrate a misuse of the court system. But Randy makes very good points about the frivolity of this particular class action suit, ranging from the fact that the plaintiff has elected expensive seats over cheaper seats where there is no possible risk of injury from foul balls, rendering her complaints self-serving (to say the least), to the fact that the case probably cannot survive the types of filtering events (such as motions to dismiss, class certification standards, etc.) that serve to weed out non-meritorious class actions.
But what is most interesting about Randy’s Op-Ed is that he notes the real, fundamental problem with the proposed class action, which is that the law has long applied a sort of caveat emptor approach to the risks faced by baseball fans of being hit by foul balls and broken bats: as Randy discusses, the law pretty much says such fans are not entitled to sue over such harms, on the thesis that they assume the risk by going to the ballpark. This has its own interesting subtext, having to do with the extent to which baseball is woven into the national fabric and the extent to which the development of the common law reflects that fact. But that is a story for another day, and one best explored by a more skeptical writer than me.
The more telling and immediate issue is a point that underlies Randy’s piece, which is that the law maintains such principles disfavoring claims of injuries by fans. One has to ask, though, whether today such a legal approach should continue, as team owners take every step open to them to increase profits, including – such as at Fenway Park – adding seats that are ever closer to the field (and which thus increase the risk of injury, by placing paying customers ever closer to the action, even though – unlike the twenty something world-class athletes they are now only a few feet away from on the field - they certainly lack the reactions to avoid batted balls and the like). At what point does the quest for profits by increasing the risks to customers require revisiting any rules that make it difficult for an injured baseball fan to sue if seriously hurt by a batted ball? If – taking this example from cases I have tried – a company makes a product that is more dangerous than necessary so that it can make more money from its sale, the law doesn’t bar an injured customer from asking for recompense. Should baseball team owners who have increased their customers’ risks in the pursuit of ever higher revenue be immune from answering for it in court in the same way? I don’t profess to have studied the question enough to know the answer, but I have certainly studied it enough to ask the question.
Do You "Work For" Uber?
You know, the Uber decision out of the California Labor Commission is fascinating, even if it isn’t directly on point with the subject of this blog. It immediately brought me back to the first appeal brief I ever wrote, as a young associate, which concerned, at its heart, the question of whether the plaintiff was an employee or instead an independent contractor. In Massachusetts, at least at that time, there was significant authority laid out in published cases as to the test for determining whether someone was an independent contractor, but essentially no such statements in the published decisions defining what makes someone an employee. I wrote the brief from the perspective of whether the plaintiff in that case qualified as an independent contractor under the standards laid out in the case law, demonstrated that the plaintiff did not satisfy those standards and thus was not an independent contractor, and that the plaintiff was therefore, by definition, an employee. What stands out to me, though, and creates my lens for viewing the Uber decision, is that the partner I turned the brief into read it once and then immediately said to me that I had shown the plaintiff was not an independent contractor, but that he did not see why that made the plaintiff an employee. I can remember explaining to him that under Massachusetts law, and really anywhere in the country, someone has to be one or the other, either an employee or an independent contractor, and that the case law analyzed the issue in that way: if the relevant legal test does not demonstrate independent contractor status, than the person in question is by definition an employee.
It has never struck me that Uber drivers and similar “workers,” for lack of a better word, fit comfortably within those traditional understandings, that one is either an independent contractor, as we have traditionally understood the phrase, or an employee. They are clearly entitled to more protections and benefits than the society at large and employment law in general extend to independent contractors, as they don’t really fit the traditional understanding of that term, no matter the clever machinations of Silicon Valley lawyers, but it is not clear that they qualify as employees under any traditional sense of the word either. There may, perhaps, have to be evolutionary movement in the case law that will allow the legal structure to incorporate these types of sharing economy worker bees into the system somewhere in a middle ground, and there may have to likewise be a similar movement in statutory provisions that control access to and administration of 401(k) plans, disability benefits and the like for these purposes. But as this article points out – featuring Boston lawyer Shannon Liss-Riordan (Bostonians always want to be the first ones to fire the first shot for liberty, in any context, see, e.g., the Battle for Bunker Hill, which was actually fought on Breed’s Hill, but why ruin a good story) – the first steps in this process will be class action and other litigation, and I just wonder whether that is too blunt an instrument for this process. Would we, and the workers of the sharing economy, be better served if state legislatures and Congress tackled the problem of their job classification and their rights under employment law in the type of thoughtful way that created ERISA forty years ago (if you think I am kidding with that last characterization, I am not; take a look at Professor Jim Wooten’s work on the Congressional development of ERISA, part of which you can find here)?
It's a Top Hat Plan? Prove It
This is a great article in PlanAdvisor on the recent decision in Tolbert v. RBC. Tolbert is a truly fascinating, and wonderfully instructive, district court decision on one of my favorite topics, and actually favorite things to do (I know it’s a strange interest, so sue me) – which is the litigation of top hat cases. What’s instructive about the decision is that it lays out, quite clearly for anyone to understand, what are the elements of a top hat plan and what must be proven in litigation to establish that a plan is actually a top hat plan. What’s fascinating about the decision, in turn, is that it finds that at least three aspects of that test need factual development at trial: whether the plan was primarily for the purpose of providing retirement income/deferred compensation; whether that was provided only to a select group of highly compensated individuals; and whether the participants who would benefit from the top hat plan had the workplace power to substantially influence the top hat plan’s terms. Of great interest is the Court’s discussion of that last factor, and its recognition that the courts have not firmly established one way or the other whether it actually is a factor in determining whether a particular deferred compensation arrangement is, in fact, a top hat plan. Other than that last element, there is nothing in particular unique about the Court’s determination of the factors that need to be considered to decide if a particular deferred compensation arrangement qualifies as a top hat plan, but even with regard to those elements, the decision is fascinating, and here’s why: the decision finds that the existence of the relevant elements of a top hat plan were not established on summary judgment and must instead be determined at trial. I have litigated top hat plan cases before, and counseled parties on them outside of litigation, and the fascinating thing about them is that employers often think of them as straight forward and as not really open to dispute over whether the deferred compensation being offered is a top hat plan for purposes of ERISA. In reality though, it is not always that clear once a dispute arises whether the requirements of a top hat plan were met, because the elements noted above can require serious factual investigation to determine whether they can be proven in court. To some extent, the problem is that there is a clash between the “if it looks like a duck and walks like a duck, then it’s a duck” approach to top hat plans and the rigorous standards of proof often applied by courts. When employers offer deferred compensation plans to a small group of top of the scale employees to try to tie them more firmly to the company, they know they are offering deferred compensation to a select group of top tier employees, and thus feel quite certain that the plan involved is a top hat plan. To them, it looks like a top hat plan, walks like a top hat plan and quacks like a top hat plan, so it is a top hat plan. That, though, is not enough, as Tolbert shows, for a court applying rigorous standards of proof: instead, the elements are going to have to be proven by testimony, data comparing the recipients to the employee pool as a whole, and the like.
Susan Mangiero on Tibble and the Complexity of Monitoring Plan Investments
So, as I and dozens of other observers have pointed out (although I am confident I am the only one who quoted Shakespeare on the subject), the Supreme Court’s recent decision in Tibble drove home the importance of monitoring plan investments, as well as the fact that, dependent on the circumstances, the failure to do so, and where necessary to take corresponding action based on the monitoring, can constitute a fiduciary breach. Okay, okay, say all the ERISA lawyers: time to tell our clients to set up a monitoring schedule and to meet regularly to do so.
Well, as forensic economist, expert witness and blogger extraordinaire Susan Mangiero points out, not so fast. From a financial perspective, monitoring plan investments can be a complex enterprise, highly dependent on details of the investments themselves and their relationship to market stimuli. In this article for BNA, Susan explains in detail exactly what this means, illustrating the level of complexity that the type of monitoring that Tibble requires actually involves, and pointing out that plan fiduciaries are now going to have to carefully consider when to bring in – and pay for – still more outside expertise for these exact purposes.
Déjà Vu All Over Again: Patenting Retirement Plan Features
You know, you live long enough and you see everything come back around again. Ties get skinny, then they get wide. Standardized testing is seen as the key to everything, then as evil incarnate, then as the key to everything again. Baseball is learning to again look at the quality of the player on the field, after ignoring it in the belief that numbers on a computer screen can tell you everything. And so on, and so on, and so on.
I could not help but think of this when I read this story this morning in the Wall Street Journal on whether certain 401(k) features infringe on patents held by others, an article in which my colleague, Marcia Wagner, played a featured role. Why couldn’t I help but think of this? Because in 2007, the folks at BNA were, as they often are, well ahead of the curve (in this instance by almost a decade), writing about the question of whether tax strategies should be patented. Why do I remember that so clearly? Because they interviewed me for the article and I was quoted in depth on the subject. I wrote about it here, and later returned to the subject a few months later when I wrote a post on whether patenting ERISA strategies had reached its end game.
Yogi Berra once famously said that its like déjà vu all over again. Its amazing how often that rings true if you practice law long enough.