12th National Forum on ERISA Litigation - View From the Bench
As many of you know, I have spoken at ACI’s ERISA Litigation Conferences over the years on topics as diverse as legal ethics in the context of ERISA litigation, ERISA remedies, discovery issues and fiduciary governance, among other topics. I have always been a fan, though, of the judicial panels at the conferences, where – much as the name suggests – panels of federal judges discuss topics of importance to ERISA litigators. I have never left one of those panels without useful information that I have promptly put to work. I will give you one example. Over the past few years, I have been litigating a case with significant issues concerning spoliation of electronically stored information, a topic which has been discussed extensively at the panels. One question I asked from the audience a couple of years ago on the topic led to further discussions after the panel, in the lobby of the hotel where the conference was staged, with a federal magistrate judge on the topic. All of that insight animated my strategy with regard to my spoliation case over the years.
Because I like those panels so much, I have been agitating with the conference organizers for years to give me the keys to one of the judicial panels, in the guise of being offered the opportunity to moderate the panel at an upcoming conference. My entreaties were finally heard, and I will be moderating the presentation by the judicial panel at ACI’s West Coast installment of its ERISA litigation conference in June.
You can find information on the conference here, but of perhaps even more value in the short run, you can also get a reduced rate for the conference, by calling ACI at 212-352-3220 ex. 5511 or emailing Joe Gallagher at ACI before the close of business on Tuesday March 29th and mentioning my name. Hope to see you there and, by all means, if you are a reader, be sure to say hello and introduce yourself.
Top Ten List Of Things From 2015 That Are Somehow Related To ERISA And My Practice
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).
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.
On the Human Element in Plan Governance, Officiating and other Human Endeavors
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.
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 firstname.lastname@example.org, and mentioning my name.
ACI's 9th National Forum on ERISA Litigation
The American Conference Institute (ACI) hosts a comprehensive ERISA litigation conference twice a year, in New York in October and in Chicago in April. Fall in Manhattan and spring in Chicago. What’s not to like?
Beyond that though, the conferences have always provided a detailed and in-depth look at the hottest current topics in ERISA litigation, and I don’t say that just because I am speaking at the upcoming conference, in April, in Chicago. I also found this to be the case when I was attending in the past, in New York, as a member of the audience. Even most recently, at the 2014 conference in New York, where I spoke as a member of the panel discussing ethical concerns in ERISA litigation, I took a great deal away from the other presentations I attended, including the always interesting judicial panels, in which sitting judges discuss litigation and ERISA topics that have caught their attention.
In April, ACI will hold its 9th National Forum on ERISA litigation in Chicago, where I will be speaking, along with three well-known ERISA litigators, on current topics in benefit litigation. If you are interested in attending, ACI offers a discount to attendees who are invited by the speakers, and I would like to make that offer available to all of you who do me the good favor of reading my posts. If you would like to take advantage of that offer, all you need to do is contact ACI’s Joe Gallagher at 212-352-3220 ext. 5511, before January 30th, and mention my name.
A Nuanced Look at the Attorney-Client Privilege?
This caught my eye, partly because I sat on a panel recently discussing the fiduciary exception to the attorney-client privilege in the context of ERISA litigation. This, in this case, is a Bloomberg BNA ethics webinar on “Attorney-Client Privilege and Work Product Doctrine Issues,” which includes, of particular note to me, “[t]he surprising narrowness and fragility of the attorney-client privilege[,] the nuances of privilege protection in a corporate setting [and the] great risks involved in relying on common interest/joint defense agreements.” Each of these topics is absolutely worthy of review, and each, for various reasons, rings a significant bell for me.
Initially, the need to discuss the narrowness and fragility of the privilege immediately made me think of the old saying that “what’s old is new again.” For my whole career, I am pretty sure, I have periodically been reading articles and reports, sometimes alarmist, about threats to the sanctity of the privilege. But the privilege has never been absolute and was never intended to be, and its exact contours have always been shifting, no different than the beach line on the elbow of Cape Cod. We see this clearly in the ERISA context with the development of the fiduciary exception to the privilege, which leaves open to disclosure many plan communications with counsel to an ERISA plan that occur in a non-litigation setting.
The real issue is not the scope of the privilege or the fact that the scope changes, but that practitioners need to understand the parameters of the privilege as well as the changes to it, and account for them. In speaking engagements, I often reference a particular high dollar value top hat dispute litigated in the district court in Massachusetts in which a prominent law firm’s somewhat caustic comments communicated to the corporate client eventually ended up in evidence at trial, simply because outside counsel did not understand certain loopholes in the privilege. While not outcome determinative in the case, the email in question certainly didn’t help the client’s defense when it went into evidence, something made clear by the fact that the judge quoted it in her opinion. This is why the second part of the webinar’s list of topics caught my attention, with its reference to the “nuances of privilege protection in the corporate setting;” the privilege is in fact nuanced and not absolute, and in-house and outside counsel to corporations need to understand those nuances to avoid exactly the type of embarrassing and harmful exposure of communications that occurred in the case I mentioned above, which I routinely use as my abject lesson for teaching this point.
Finally, the reference to the great risks inherent in common interest and joint defense agreements caught my eye for much the same reason, which is simply this. As with the privilege itself, lawyers and their clients often place too much blind faith in such agreements, believing they safely and fully insulate work done jointly by all those on one side of the “v” in a case. This is not, however, an accurate way to understand it or to approach the issue, as there are a number of variables that can come into play with regard to whether such protection applies and, if so, to what extent, in a particular case. Lawyers and clients need to understand that, and to know what they are, in making use of such agreements and approaches to the privilege, and not simply assume that communications among those parties are all privileged.
Clearing Out the Attic of My Mind: Notes From ACI's 8th National Forum on ERISA Litigation
With all due apologies to longtime Globe sports columnist Dan Shaugnessy, who would periodically “clean out his desk” by running a column of short bits he had collected, here’s a list, in no particular order, of interesting (to me, anyway) items I took away from ACI’s excellent 8th National Forum on ERISA Litigation in New York City this week, where I spoke on ethical issues in ERISA litigation:
●What a great group of panelists, and thoughtful, educated audience. They reaffirmed my (somewhat narcissistic and self serving) belief that ERISA litigation attracts and holds onto the sharper tools in the bar.
●Day 2 of the conference had an excellent panel on ESOPs, with at least one panelist noting the pervasive problem of conflicted fiduciaries in this area, who may have interests in the outcome of a transaction that are not the same as those of the employee participants in the ESOP. During the course of the day, whether at lunch or by the coffee table outside the meeting room, everyone I spoke to had a horror story about a conflicted ESOP trustee and an ESOP transaction that disserved employees as a result. Isn’t it past time to effectively require the appointment of independent fiduciaries, from outside of the employee owned or soon to be employee owned company, to pass on transactions on behalf of the employee owners?
●I’ve been hearing for years that Broadway is either dead or dying, but you couldn’t tell that from the outdoor advertising at all of the theaters surrounding the conference site. Either all the shows out there right now are the best there’s ever been, or it is truth in advertising, rather than Broadway, that is dead.
●Incidentally, every time I left my hotel I saw a big promo for Bradley Cooper in a new version of Elephant Man on stage. I know everyone’s a critic, but Cooper was the weak link in the American Hustle cast, so I can’t say the promo had me reaching for my wallet.
●Nobody knows nothing, at this point, about what impact Dudenhoeffer will have (I exaggerate slightly, as many panelists and audience members had calculated and well-educated guesses as to the future of stock drop litigation). As I discussed with some members of the audience, one wonders whether the class action bar will go forum shopping with regard to the next round of decision making in this area, looking for the most favorable possible venues for the first of the next round of decisions in this area.
●Speaking of the class action bar, those of its members who were in the audience looked amused when a panelist referenced the class action bar as “sharks.”
●There was an excellent panel on the public pension crisis. It looks to me like the problem will inevitably be left to bankruptcy courts and litigators to sort out, which drives home the extent to which the political will and leadership needed to address the problem is absent.
●One of the most interesting panels to me every year is the insurance industry panel discussing fiduciary liability and other insurance matters related to insuring risks and exposures in the benefit plan industry. It lays the complexity of insurance coverage law (which many lawyers find a very complex area) on top of one of the few areas of the law that exceeds it in complexity, ERISA.
●In the time between the insurance panel’s presentation and getting back to my office, what showed up on my desk but a complicated problem concerning the extent of insurance coverage for an ERISA exposure.
●In the time between my own presentation on ethical issues in litigating ERISA cases and getting back to my office, what showed up on my desk but an ethical conundrum I had never seen nor even thought of before. Grist for the next time I give a presentation on that issue, I suppose.
●The judicial panels on the morning of the second day of the conference are always interesting, and it always catches my attention how many times, and in how many different ways, the judges reference their desire to have the lawyers before them simply act courteously and respectfully to each other in the cases pending before them. One judge commented that, from his seat on the bench, it looks to him that “civil lawyers act criminally to each other and criminal lawyers act civilly to each other.”
●In the time between that judicial panel and my own presentation several hours later, I received at least two emails that documented the judges’ concerns in this regard.
●And I bet so did every other lawyer sitting in the audience.
●There are worse places in the world to watch a World Series game than the West Side Palm in NY.
●I really enjoyed the top hat plan litigation presentation, but that may just be me. There is something I have always found fun about litigating top hat and other executive compensation disputes. Maybe it’s the structure of top hat plan cases, which have a very logical order and composition of issues that can be exploited by a litigator. The presentation matched this, with a focus on the step by step elements of creating top hat status and defending against challenges to it.
●And finally, the panelist who discussed standards of review in ERISA litigation and noted that he may be the only person in the room old enough to remember litigating before Firestone was a treat. Firestone was decided in1989, and, despite nearly 25 years of experience, I never litigated benefit disputes in a pre-Firestone environment, so it was fun to hear, even briefly, how the litigants and the courts addressed the standard of review in the days before Firestone (hint: they typically didn’t).
An Overview of 401(k) Litigation, Courtesy of Chris Carosa's Excellent Interview with Jerry Schlichter
Chris Carosa of Fiduciary News has a tremendous interview with Jerry Schlichter, who has carved out an important niche litigating class action cases against 401(k) plans. Schlichter has litigated nearly all of the key excessive fee cases of the past few years, and currently has one pending before the Supreme Court. I discussed the case he currently has pending before the Supreme Court, Tibble v. Edison, in an article way back after it was decided by the trial court, where I contrasted the trial court’s analysis of the excessive fee issues to that provided around the same time by the Seventh Circuit. You can find that article here.
Chris’ interview with Schlichter is important and valuable reading. The opposite of a puff piece or personality profile, it contains some real thought provoking comments on 401(k) plans and the risks of fiduciary liability, and I highly recommend reading it.
Interestingly, I am speaking next week at ACI’s ERISA Litigation Conference in New York on conflicts of interest and other ethical issues arising with regard to ERISA litigation. Chris, in his interview with Schlichter, goes right to the heart of the question, when he turns the conversation to the “obvious and serious conflicts-of-interest” that can exist in 401(k) plans given their structure, compensation schemes, and the sometimes contradictory interests of fiduciaries, participants and service providers. In the interview, Schlichter provides a nice window for approaching the issue, when he presents three key rules that he believes fiduciaries should follow, which are:
1) Putting participants’ interests first – this should be the beacon that fiduciaries follow; 2) Developing a fully informed understanding of industry practices and reasonableness of service providers’ fees – in other words becoming a knowledgeable industry expert; and, 3) Avoiding self-dealing – you simply cannot benefit yourself in any way.
A great deal of conflicts of interest in this area of the law can be avoided simply by keeping those three principles first and foremost. Indeed, many of the conflict of interest issues that I will be discussing next week on a granular level are violations, on a macro level, of one or the other of those three ideas.
Just Finished Speaking to ASPPA on ERISA Litigation, Soon to Speak at ACI's National ERISA Litigation Forum
So I had a great deal of fun speaking on current events in ERISA litigation to the ASPPA regional conference here in Boston this past Thursday, and my great thanks both to the organizers who invited me and everyone who attended. I am especially grateful to those in the audience, more knowledgeable about the wizarding world of Harry Potter than I, who did not point out that, in trying to compare a malicious (but hypothetical) plan sponsor to an evil but all powerful wizard, I mixed up Dumbledore and Voldemort. Oh well – much better than mixing up the prohibited transaction rules, I suppose.
One of the more interesting discussions that came up during my presentation had to do with recent case law revolving around what are, and what are not, plan assets, and how that issue influences the outcomes of cases (including ones I have litigated over the years). It is worth noting that the First Circuit just issued a very important decision validating certain employee life insurance benefit structures on the basis of just that consideration, in Merrimon v. Unum Life. One of the points I touched on in my talk is that the question of when funds are and are not plan assets for purposes of ERISA is almost certain to be a central aspect of both future litigation and future efforts by plan service providers to insulate themselves from fiduciary liability, given very recent developments in the case law. The new First Circuit decision, Merrimon v. Unum Life, is very noteworthy in this regard, as one can see in it how years of litigation and the appropriateness of a relatively common form of benefit payment structure can come down to, at root, the very basic question of what constitutes plan assets for purposes of ERISA litigation.
With that said, I wanted to turn to another speaking engagement on my calendar, which is the American Conference Institute’s 8th National Forum on ERISA Litigation, on October 27-28 in New York. I will be speaking on “Ethical Issues in ERISA Litigation,” including on one of my favorite issues, the fiduciary exception to the attorney-client privilege, along with Mirick O’Connell’s Joseph Hamilton. The reason I wanted to mention it today is that, through July 24th, a special rate is available for anyone who registers, mentioning my name and this blog. To take advantage of the special rate, you should contact Mr. Joseph Gallagher at the American Conference Institute, at 212-352-3220, extension 5511.
I hate to sound like an infomercial, but if you are planning to attend anyway (or weren’t aware of the conference before but now are interested in attending), it would be silly of me not to pass along this information.
More on the Golf Course RFP
Susan Mangiero, one of my favorite experts on financial deals and transactions, was kind enough to post on my presentation to the Boston Regional Office of the Department of Labor, where I spoke on common mistakes by plan sponsors. I spoke as part of a day long training program that Susan presented at as well, even if she was too modest to mention it in her post, and I was very pleased and impressed by the audience, their participation and their questions. I have written before that I generally hold a high opinion of the Department’s staff, and the audience participation at the training session did nothing to lessen that opinion. Both in my primary talk, on plan sponsor mistakes, and during a subsequent panel that I participated in on litigation issues, fee disputes, and fiduciary governance of plans, the audience raised great points and asked pointed questions. One member of the audience shared with me an additional important mistake plan sponsors make, that I had not previously thought of as a significant problem, primarily because it is not one that arises in litigation but is instead more of a day to day compliance issue. There is nothing better as a speaker than having walked away having learned something from the audience that you did not know the day before.
Susan’s reference to the “Golf Course RFP,” which actually is a slide in my PowerPoint deck, concerns one of my chief cautions to smaller and mid-size companies, where benefit plans, particularly 401(k)/mutual fund programs, may be chosen by a company owner simply based on the vendors that are already in the owner’s social circle, such as, yes, those at his or her country club. If it turns out down the road that employees were paying too much for or getting too little from the plan, in comparison to what could have been located in the marketplace as a whole at that time, picking a plan’s vendor in that manner will most certainly come back to bite the company owner. Indeed, from a trial lawyer’s perspective, such a selection process would, in a fiduciary duty lawsuit over that plan, be a smoking gun used to show poor processes and a corresponding breach of a fiduciary duty. At the end of the day, RFPs aren’t normally conducted on a golf course, and this is one area of business life where it is especially important to remember that.
Why Amara's Expansion of Remedies Matters Now, But Not So Much in the Long Term
My small group of dedicated twitter followers know I was live tweeting last week from ACI’s ERISA Litigation conference in New York, at least for the first day of the conference. Tweeting allowed me to pass along ideas from the speakers and my own thoughts on their points in real time, which was, frankly, a lot of fun for me (if you haven’t tried live tweeting from an event, you should; it turns being an attendee watching others speak on a topic into a much more interactive and engaged experience). At the same time, though, its fair to say that many of the topics discussed by the panelists, and many of my own thoughts on those topics, don’t neatly fit within 140 characters, so I thought I would post some more detailed take aways from the conference, starting today.
One of the things that jumped out at me at the conference was the fact that the ERISA defense bar has clearly coalesced around the idea that Amara is a bad thing and that the expansion of equitable remedies set into motion by that opinion is objectionable. Even though I am, at least 80% of the time, a member of that defense bar, I think that’s a bit harsh and an overreaction. It does not strike me that the consensus defense bar view articulates a particularly substantial argument for why the Court was wrong to expand that remedy. At the end of the day, most of that remedial expansion – in the forms of reformation, estoppel and surcharge – is directed at only one phenomenon, which is the circumstance in which there is a disjunct between what a plan actually says and what is communicated to plan participants through summary plan descriptions, human resources employees, or other sources (though I have no illusions that participants and their lawyers won’t find ways to try to extend those remedies to other types of circumstances as well). To the extent that employees can show actual harm to them from that error (and by this I do not mean just being deprived of some legal right under ERISA or some hypothetical opportunity to act in response to learning the correct information, but rather some showing of actual concrete out of pocket loss to them), there is no reason they should be without a remedy, and the expansion of remedies in Amara prevents that otherwise all too common outcome.
As one of the prominent in-house attorneys speaking at the conference noted, the nature of ERISA is that the bar for proper performance by plan sponsors and administrators keeps rising, and that is as it should be: one panelist made the point that what is a best practice today in running a plan, will simply be the standard practice that must be lived up to tomorrow. This is all that Amara’s targeting of communication errors by imposing equitable remedies for them will really do in the end: make accurate participant communications a crucially important part of running a plan. As plan administrators raise their game in this regard (making what is today a best practice the standard in this regard in the future), these remedies and the Amara decision itself will become relatively unimportant, and people will come to wonder why there was so much defense bar hue and cry over Amara in the first place.
A Very Good Read: PLI's ERISA Benefits Litigation Answer Book 2013
I can still remember the first hearing I argued at, close to twenty five years ago, in Massachusetts Superior Court, in the very quaint (realtor speak for old, but still) courthouse in Dedham – I can still see the dusty parking lot out back, the old wood banisters separating the lawyers from the public area, and the close quarters among the lawyers, clerks and judge that are typical of courthouses of that vintage. Sure, I remember the argument too, which I won – it was an insurance coverage dispute over whether a voluntary payments clause barred coverage of a settlement in a trade dress infringement dispute between two Boston area businesses.
But it is interesting to me that what I most remember of that day are the sights and smells, the sensations, and the like, of being in court that day (along with the fact that I won; like many lawyers, I suspect, I tend to forget the losses but remember the wins). Yet, what I remember most about the first time I appeared in court to argue an ERISA case, close to 20 years ago at this point, had nothing to do at all with any of those types of sensations: what I remember most is that the lawyer for one of my co-defendants, a young (though still senior to me at the time) partner at a major firm, showed up at the hearing with a trial bag full of ERISA treatises, which he then arranged on the table in front of him before his argument. Now I know most of those treatises, as I can look across my office at my bookshelf and see them sitting there, and many of them are very good, but for detailed research and analysis work; none of them are really suited to being flipped open for a quick, summary answer on a litigation question, such as the kind that might arise in a courtroom itself, or for a quick consult in the few minutes one has to respond quickly to a client’s e-mail.
For years, I have looked for the type of resource that would serve well in that role, and I have at least skimmed the marketing materials for most of the major ERISA works out there as part of my search, but I never found a real fit – until now. One of the many benefits of blogging is that, on occasion, I luck into receiving a review copy of a book on ERISA or insurance coverage, and this time around it was the ERISA Benefits Litigation Answer Book 2013, edited by Jenner & Block’s Craig Martin and Amanda Amert, that landed on my desk. Published by PLI, it truly fits that niche – the handy dandy quick answer guide to litigation issues that arise in ERISA cases. Now, I am not sure it is the right book for a neophyte ERISA litigator, in that it provides – deliberately so – summary answers to questions that arise in this area, and thus requires a certain level of experience and expertise on the part of the reader; without that background, a reader cannot place a short answer in context, and understand what further analysis is needed beyond the summary answer. However, for the experienced lawyer who needs a quick but clearly accurate answer under time pressure, or the general practitioner or in-house lawyer who needs a starting point before turning to an outside expert on the subject (for instance, to determine the nature and viability of a claim against the company and to form the necessary background to discuss the claim intelligently with outside counsel), I can think of no better book out there at the moment.
Interestingly – to me anyway, because I have never noticed it before – there are two separate book groupings in my office. Across the room, on a bookshelf that I have to get up from my desk to reach, are the major treatises, copies of the “Annual Review of Banking Law” that I edited in law school (so long ago that, believe it or not, we published it on a Wang word processing system), and author copies of journals in which my work has been published. Right behind me though, on a credenza for easy reach, are books that I refer to all the time, such as the state and federal rules of civil procedure, an excellent summary of the federal rules of evidence from a seminar I attended many years ago, and Randy Maniloff’s great handbook on General Liability Insurance Coverage (the last, I just noted, rife with sticky notes on multiple pages). I have already put Martin and Amert’s PLI book with them.
Microblogging About ERISA on Twitter
There have been many nice benefits to writing this blog for several years, ranging from the fun of writing it to the pleasure of meeting others with similar interests. For me professionally, though, probably the most important benefit has been the constant flow across my desk of key court decisions, articles and thought pieces on developments in ERISA law, which has helped (and sometimes forced) me to stay constantly up to date on the latest developments in my area of expertise. However, that benefit has come with a complication, which is that the steady stream of information on ERISA that crosses my desk each day includes far more useful information and material than I could ever hope to discuss, and pass along, on this blog. This is particularly the case because I have never been willing to use this blog as a place simply to post other people’s work, but instead typically only post when I believe I have something independently useful to say about someone else’s article or blog post, or about a court decision, or the like.
This has meant, however, that for years, large amounts of quality work discussing ERISA issues has sat on my desk, reviewed only by me and not passed along, despite the value of much of that work. It has always bothered me when an article or decision worth passing along has come in front of me, but that I would not be able to discuss in a blog post, either because I was posting on a different issue, or because of the crush of my real job (which is litigating these and other types of disputes).
Eventually, though, light dawned on Marblehead, and I realized I could solve the problem by using Twitter for one of its originally expressed purposes, as a microblogging tool, and tweet articles, comments, decisions and the like that I believed to be of value, but which I did not expect to discuss in a full blown blog post. I have been doing so for awhile now, and have taken to regularly passing along relevant ERISA news that will not make it onto the blog. You can follow me, and my running list of interesting ERISA information, at @SDRosenbergEsq.
Notes on The John Marshall Law Review's Special Edition on "The Past, Present, and Future of Supreme Court Jurisprudence on ERISA"
Here’s a neat special edition of the John Marshall Law Review, covering Supreme Court Jurisprudence in advance of an employee benefits symposium at the law school. Several of the articles in particular jump out at me as a practitioner as being right on point with key issues playing out in the courtroom; I think it is notable in this regard, and possibly causally related, that several of the authors are practicing lawyers who focus on ERISA litigation.
One article addresses fiduciary obligations with regards to holding employer stock in a plan, or what the rest of us commonly refer to, by shorthand, as the Moench presumption. As I discussed in this post, the courts are in the process of working out the application of these obligations and the presumption under the real time circumstances of actual cases. Another focuses on the development and application of equitable remedies after Amara, and one other speaks to the role of SPDs after Amara. The two are linked, in that the communications contained in SPDs are central to the prosecution of the types of equitable relief claims opened up by Amara. And finally, one other article addresses the restricted scope of remedies available to plan participants as a result of the Supreme Court’s historically narrow reading of ERISA remedies in conjunction with its historically broad reading of ERISA preemption. Interestingly, and as I have written elsewhere, the expansion of equitable remedies by means of surcharge and other types of relief recognized by the Court in Amara is likely to serve as a curative to that problem, by creating an avenue to use the equitable relief prong of ERISA to provide relief to participants in circumstances in which, previously, the combination of ERISA’s limited list of remedies with its broad preemptive effect would have precluded relief being granted to the participant.
On ERISA and the Potential Liability of Senior Executives
Susan Mangiero of FTI Consulting, who blogs at Pension Risk Matters (as well as at Good Risk Governance Pays) and is one of my favorite sources of information concerning the investment and risk management realities that lie behind the façade of ERISA governed plans, is, along with a few other worthies, presenting a webinar on Wednesday, March 7, on “The ERISA and Securities Litigation Snapshot: Things You Can Do Now to Minimize CFO and Board Liability.”
The webinar is scheduled to cover:
•Why ERISA litigation claims against top executives and board members continue to grow
•How securities litigation and ERISA filings are related and what it means for corporate directors and officers
•What ERISA liability insurance underwriters want clients to demonstrate in terms of best practices
•What steps the Board and top executives can take to minimize their liability
•When to Get the CFO and board members involved
My quick thoughts on each of these topics, and why they mean this webinar is worth a listen if you have any responsibility for the financial and liability risks generated by ERISA governed plans? Lets go in order.
Why do ERISA litigation claims against top executives and board members continue to grow? There a number of reasons, but here are three quick ones in a nutshell. First, the market losses suffered over the past few years by participants has highlighted the investment risks faced by participants, and made them look closely at others’ possible responsibility for those losses. Second, decisions such as LaRue and Amara, while not opening a floodgate, have nonetheless created an environment in which it is easier to structure and prosecute claims against fiduciaries on behalf of participants. Three, plans are where the money is; there is more potential damages sitting in a company stock plan than you can shake a stick at. Remember what Willie Sutton said about banks? None of this is changing anytime soon, and ERISA litigation claims against senior officers will continue to be a growth stock as a result.
How are securities litigation and ERISA filings related and what does it mean for corporate directors and officers? Short answer: over the past several years, court decisions and congressional action have made it harder to recover in securities cases, while the same is not true for ERISA cases. In many instances, ERISA theories allow another way to target stock losses without having to jump through the hoops that exist in a securities case. For directors and officers, this means they will face more ERISA suits down the road, including against them personally. They need to have the right business structures in place to protect them against such claims, and the right insurance in place if they are found liable.
What do ERISA liability insurance underwriters want clients to demonstrate in terms of best practices? Underwriting needs in this area in many ways overlap with the same steps that should be put in place to protect the fiduciaries against suits, to reduce the risk of a judgment, and to minimize the likelihood of a suit being brought in the first place, regardless of the insurance issues. These steps are what I have often called defensive plan building, which is the need for due diligence, active understanding of the plan, accurate communications with participants, developing expertise and/or hiring it as needed, and following the same level of sophistication and investigation that would be applied to any other crucial part of a company’s operations.
What steps can the Board and top executives take to minimize their liability? This pretty much concerns taking the same steps, mentioned above, that the company’s insurance underwriters will appreciate. Interestingly, this is an area of the law and of insurance where all of the incentives line up well. The same steps reduce the risk of liability, reduce the risk of getting sued, and likely reduce premium dollars all at the same time. There is one other key step that should be looked at closely though, when considering how to protect senior executives and Board members against liability under ERISA, which is to carefully think about who will be involved in the plans and in what manner; the selected ones will be at risk for ERISA breach of fiduciary duty claims, while the others can be carefully and deliberately kept out of harms way. This means, though, that this has to be considered in advance and the proper structures put in place to accomplish it; if you do this after the fact, you are bound to end up with a lot more potentially liable fiduciaries among the executives and board members than anyone at the defendant company ever expected would be the case, due to ERISA’s concept, embedded in statute, of the functional, or deemed, fiduciary.
When should you get the CFO and board members involved? Yesterday, if possible, and right now, if not, for all the reasons noted above.
Speaking of New Department of Labor Regulations . . .
By the way, I and a cast of thousands (no, not really a cast of thousands; more like a very knowledgeable cast of several) will be speaking on “New Retirement Plan Regulations and Legislation Impacting 401(k) and 403(b) Plans” on Friday, March 9th. Ed Lynch of Fiduciary Plan Governance and I will be speaking on the Department of Labor’s effort – now in abeyance – to expand the definition of fiduciary by regulation. Earlier speakers will be covering the new fee disclosure regulations, and later speakers will cover target date funds, among other issues. The program is part of the Strategic Connection series hosted by the New England Employee Benefits Council, and you can find details, as well as registration information, here.
The New York Times on BrightScope
I don’t have much to say about this, but I would be remiss if I didn’t pass along this article from the New York Times the other day on BrightScope and its founders. The article, rightly, notes that BrightScope has its critics, but there is no denying that their work is adding to the knowledge of, and information available to, plan participants. Ignorance is not bliss, probably ever and certainly not for plan participants when it comes to their investments; as I noted in my most recent post (oddly, also provoked by a Times article), this same idea underlies the Department of Labor’s fee disclosure regulations as well.
Talking About Fees
Summer time and the living is easy. Well no, not really – which is fine, because nothing makes a lawyer (at least this lawyer) more nervous than having time on his hands. Time demands have, though, cut down on my posting since the 4th. Still, I have had time over the past few weeks to think a little bit about this educational seminar I spoke at that was hosted by Asset Strategy Consultants on the role of fees and revenue sharing in designing 401k plans. My talk focused on defensive plan building, or defensive lawyering in other words, which I define as the process of building out the investment options in a manner that will reduce the risk of getting sued on the theory that fees and expenses in a plan were excessive, or, if sued, of being found liable.
This particular seminar was very interactive, with a lot of give and take with the audience, which is something I like, not least of all because I inevitably learn something. What did I learn this time around? A few things, but the following stuck with me. First, it is important to remember that there are a lot of plans out there, and many of them are staffed by committed professionals working hard to provide participants with the best plans possible. One can lose sight of this in litigation, or even in reading about the various lawsuits, settlements and judgments involving 401(k) plans, because the contentiousness of those cases, along with the real and often significant breaches of fiduciary duty that occurred in them, can obscure that reality. However, there are many more plans – some of them represented at the seminar – where people are doing the work of really diving into the plan’s investment structure, and making sure it is optimal, from both the perspective of fees and the perspective of returns. As I discussed in my talk, fiduciary prudence requires weighing both of those aspects – as well as a whole host of others – in choosing investment options.
Second, when it comes to fees and expenses in investment options, there is a lot of expertise out there, and there really is no reason not to tackle this issue prospectively. Looking backwards, the issue was not on many sponsors’ front burners, and thus I have little doubt that there may be plans out there that never put resources into controlling fees and expenses. However, at this point in time, there is no reason for any plan sponsor to be ignorant on this issue and of the risk of liability it imposes going forward, and there is more than enough expertise out there that can be brought to bear to address such concerns. I would hope that, down the road, excessive fee and expense cases will eventually go the way of the Pterodactyl, now that plan sponsors have learned to pay attention to this issue and to address it.
Third, while I am not a skeptic of excessive fee claims (the math on the impact on participants of a lack of diligence on this front is undeniable), I am of revenue sharing claims, as a general rule. Unless and until revenue sharing in a particular plan is shown to actually impact the investment choices or returns of the plan participants, it seems to be a “no harm, no foul” type of problem. If, as I discussed at the seminar in response to an excellent question, the participants can get a strong return at low fees while at the same time plan costs are driven down by revenue sharing, I don’t see a basis for finding a fiduciary breach, even if the revenue sharing was not disclosed or poorly disclosed. Obviously, this is a best case scenario, but that is my general view of that subject. I did get a good dose of reality on this issue, though, from the presentation of Mark Griffith of Asset Strategy Consultants, who illustrated the extent to which certain revenue sharing arrangements can, over time, result in too much money being paid for administration, relative to the actual costs; at the same time, Mark did a nice job of emphasizing a fact which often gets overlooked when the lawyers start yelling at each other in court about revenue sharing, which is that the costs of administering a plan are significant and have to be paid for one way or the other, a reality check that should not be overlooked when regulators, courts and lawyers are considering the propriety, or instead lack thereof, of various revenue sharing arrangements.
Fiduciary Liability: Risks and Insurance
What’s that old saying - your lack of foresight doesn’t make it my emergency, or something to that effect?
I am a little guilty of that here, in my advice to you, at the relative last minute, to hurry up and register for a webinar on the intersection of insurance law, ERISA and fiduciary liability. It is not that last minute, really, in that the webinar isn’t until Thursday, but still, I certainly could have given you more notice.
Either way, I wanted to recommend this upcoming presentation, “ERISA Fiduciaries Under Attack: Key Litigation and Regulatory Developments,” presented by blogger Susan Mangiero and a cast of thousands (well, two actually, but they are good ones), which will cover fiduciary liability issues and the management of those risks through fiduciary liability insurance. As you will no doubt note immediately, the presentation strikes right at the intersection of the two main topics of this blog.
Speaking for myself, I think there is a great deal of misunderstanding out there as to the scope and usefulness of insurance coverage in this area. I don’t think I have previously seen a webinar directly targeting this issue, so I think it’s a good one, and I highly recommend it. You can find out more about it on Susan’s blog, here.
Live Blogging from Bentley College . . .
Live blogging is usually used to mean that someone is attending a seminar and putting up posts about it while there. I mean it differently, that I will be talking live, about the topics I regularly address in my blog posts, at this seminar on May 10 hosted by Asset Strategy Consultants-Boston. The seminar is open to plan sponsors and their advisors, and I will be opening the event by speaking on "Hot Topics in Fiduciary Governance: Limiting the Risks Inherent in Selecting Plan Investment Options.”
Other speakers include Mary Rosen from the Department of Labor, as well as Todd Mann of AllianceBernstein Investments and Mark Griffith of the host, Asset Strategy Consultants-Boston. Mary and I spoke together on a panel awhile back in Boston, and her comments on the current focus of the DOL alone tend to be worth the price of admission.
Information on registering for the seminar can be found on this invitation, if you would like to attend. I hope to see many of you there next week.
Talking About Compliance is Cheap - Taking Action On Compliance Is What Matters
I talk regularly, of course, about the importance of compliance in the operation of ERISA plans - just take a look at my immediately preceding post for instance - but that is just a fancy way of restating the old saw that an ounce of prevention (in the form of a well run plan) is worth a pound of cure. As an ERISA litigator, the cure - litigation - is better business for me than the ounce of prevention ever could be, but that doesn’t change the basic fact that the only real precaution against litigation costs and liability is a well run plan, and the best defense against a lawsuit that arises anyway is the same thing -a well run plan.
But how do you get to a well run plan? While there are a number of ways to get there, here are a couple. Ary Rosenbaum, in this piece, explains why one step towards a well run plan is to bring in expert legal advice on the compliance aspects of the plan right from the get go. A true ounce of prevention strategy if I have ever heard one. Another is to constantly increase the knowledge base of a plan’s decision makers. On that front, Pozek on Pension’s Adam Pozek and ERISA lawyer Ilene Ferenczy have created a really useful little engine for accomplishing that, in the form of a series of webinars offered by Pension Pundits LLC. Their next one, coming up shortly after the first of the year, is on non-discrimination testing, and you can sign up for it here. At the end of the day, litigation costs too much money, even if a plan’s sponsor and its fiduciaries prevail, to not take advantage of these type of opportunities to avoid getting sued.
ERISA and the 401(k) turn 30
I mentioned in a previous post that I am speaking on ERISA issues in a seminar for the Professional Liability Underwriting Society. The presentation is “I Have to Retire on THIS? ERISA and the 401(k) turn 30,” and its tomorrow, Thursday, October 7th, at 2 pm. You can find registration information here if you would like to attend. I am joined on the panel by David Webber, a law professor at Boston University School of Law whose research interests run to securities law and regulation, and Mary Rosen, the Associate Regional Director of the Employee Benefits Security Administration, U.S. Department of Labor.
Moench, the DOL and the Future of Stock Drop Litigation
I had the pleasure yesterday of presenting the September Advisor Success Webinar for BrightScope, in which I discussed the law and practice of fiduciary liability and exposure in detail. Its for subscribers only and not publicly available, but for those of you in the Boston area who are in the insurance industry, I will be touching on some of the same points when I speak as a member of a panel next month at a meeting of the Professional Liability Underwriting Society; more details on that to follow.
For now, though, I thought I would comment on one particular issue that seemed to strike a chord yesterday, which is the current status and likely future direction of stock drop litigation under ERISA. To date, stock drop litigation has not, as a general statement, been terribly successful, as least not from the perspective of those seeking to represent classes of participants; its been pretty darn successful for those representing plan sponsors and fiduciaries. The reason, as many readers already know, is the famous - or infamous, depending on which side of the “v.” you sit on - Moench presumption, which in essence imposes a powerful presumption that allowing substantial amounts of employer stock to be held in a defined contribution plan cannot constitute a breach of fiduciary duty unless the company was in severe financial distress, with severe meaning something more than just a significant decline in the stock price (courts' exact phrasing on this point can vary).
What was of interest in the webinar was the question of whether this presumption will remain effective, or will instead fall by the wayside, which would open the door to more suits and likely as well to greater liability as a result of electing to offer employer stock as an investment option. The answer is that it will fall by the wayside, resulting in an increase of these types of suits and a rebirth of interest in this theory among the class action bar, if the Department of Labor has its way. In an amicus brief filed before the Second Circuit in the case of Gearren v. McGraw-Hill, the Department has outlined its position in this regard, which is, in a nutshell, that the presumption is inconsistent with ERISA’s mandates, and that, with regard to employer stock, the only exception to the generally high duties of care imposed on fiduciaries is the removal of any duties related to diversification of investment options. A Second Circuit ruling adopting this viewpoint will unquestionably expand stock drop exposure and increase lawsuits based on stock drop claims, by allowing the participants to focus on proving as a factual matter through discovery that it was not prudent to include employer stock, rather than being forced to prove that the company was under the level of severe financial distress needed to trump the Moench presumption before ever being able to investigate and prove that thesis. You can find a copy of the Department’s brief on this issue here.
Ten Ways to Stay Out of Trouble
I talk a lot on these electronic pages about compliance. Its really, from my perspective as a litigator, an ERISA lawyer’s take on the old sports saw that the best defense is a good offense. I often say that, in this economy and this investment market, any problems in the operations of a plan will become grist for a lawsuit, including seemingly minor things that participants - and class action lawyers - would have simply ignored in years past while the markets were only going up, even if they suppressed returns slightly. That’s not the case when the markets take a precipitous fall, and when many participants are finding themselves out of work or forced into retirement with substantially reduced account balances. And so compliance becomes doubly important, as the best defense to the risk posed by litigation. It may or may not prevent getting sued, but strong compliance makes for a strong defense, and for a substantial reduction in the risk of getting hit for a large judgment or settlement.
This is a long lead in to this article here, on ten principles the author identified from a major ERISA conference for protecting plan sponsors and fiduciaries from liability and litigation exposures. They are very much of a piece with the idea of pro-actively protecting oneself by means of compliance. For instance, one of them has to do with watching the fees in investment options, something I have noted frequently in posts addressing how plan sponsors should position themselves going forward in the face of the glut of excessive fee claims.
One point in the article on which I do break ranks a bit from the author is in the tenth point, which discusses the importance of hiring an ERISA lawyer with litigation skills when sued, rather than just a litigator with strong litigation skills. I don’t disagree with the point about needing to hire a lawyer with significant ERISA knowledge, and not just a good litigator who hopes to learn about the subject. That latter option is not a good bet. Most areas of the law can be mastered just fine by a high quality litigator asked to handle a case, but not this one. The courts themselves are in so much disagreement from one circuit to the next - and often from one district court judge to the next in the same circuit - over various issues, and ERISA issues often raise so many subtle points, that it is just not an area that can be well litigated by someone without substantive knowledge, honed over years, of ERISA.
That said, though, it isn’t enough to just hire a good litigator who knows his or her way around ERISA. What you need is a trial lawyer, with a demonstrated record of trying and winning cases before both judges and juries, who is substantively steeped in the law of ERISA. You need it if the case ever gets tried, obviously. But more importantly, you need a trial lawyer leading your team to get the best result period, whether that is by settlement or a resolution on the papers at some point along the way. You can only fight fire with fire in a courtroom, and if the other side is fronted by experienced trial lawyers, you will be at a disadvantage every step of the way - from discovery to settlement discussions to motion practice - if you aren’t as well, in litigating against them. Conversely, if the other side’s team isn’t fronted by an experienced trial lawyer, having your team led by one will put them at a disadvantage, and will substantially increase the odds of getting a result that favors your side.
So therein lies the rub. An ERISA trial lawyer is what you need. But in this day and age, in which so few lawyers try cases anymore - or are trained to do it since most cases they will see settle or head off to arbitration - that’s not the easiest thing to find, although I do know at least one.
Introducing Pozek on Pensions
Speaking of new blogs, I would be remiss as well if I didn’t pass along a link to Adam Pozek of Sentinel Benefits’ new blog, the wonderfully named Pozek on Pension (I have always been a big fan of alliteration). Adam has always been a font of knowledge on compliance issues and the day to day management and operational challenges of benefit plans, and I am pleased to see he has taken up the opportunity blogging presents to share that knowledge with the rest of us. When he was president, John Kennedy, in a far less politically correct world, reputedly described Washington as the perfect combination of Northern charm and Southern efficiency; if that was true then, Adam, a recently transplanted Southerner, and his benefit plan work, including on his new blog, is walking evidence that the New South has turned that phrasing on its head, into a place of Northern efficiency and Southern charm.
On Fiduciary Liability Insurance
I have written before that one of the things that makes insurance coverage law interesting is the fact that almost every trend in liability or litigation eventually shows back up in insurance disputes, in a sort of fun house mirror sort of way. Whether it is corporate exposure for asbestos liabilities, or the sudden invention of Superfund liability, those liability risks eventually end up in insurance coverage litigation over the question of whether insurers have to cover them. I cannot think of one major doctrinal development in tort liability or one trend in liability exposure in the last 20 to 30 years that has not, eventually, resulted in litigation to determine whether insurance policies cover the new exposures flowing from those developments and trends.
Anyone who reads this blog knows that ERISA governed plans, and in particular pension and 401(k) plans, have become a huge target for large dollar claims over the past several years. Just a click through the posts on this blog detail many of the claims, such as stock drop and excessive fee litigation, that are working their way through the legal system. And with this, hand in hand, has come a new focus on whether plan fiduciaries have appropriate insurance coverage in place for those risks. Some do, some don’t, and others - consistent with insurance coverage litigation trends in the past when relatively new theories of liability have had to be analyzed under policies written before the theories themselves were developed in depth - won’t know unless and until courts pass on the meaning and scope of their policies. But here, though, is a good initial primer on the question and here, likewise, is a webinar that looks likely to provide much greater detail on the subject. One thing that is for sure is that this is an area of the law that anyone involved with the representation of plan fiduciaries needs to have more than a passing familiarity with at this point.
American Conference Institute's ERISA Litigation Conference
Here at this blog, we are all about being a modern media company, as you can tell from all the pop-ups and the banner ads you encounter when you come here to read the latest posts. Synergy, and book serialization and cross-marketing and all those other business page buzzwords - that’s what we’re about here.
Now I will take a minute and pull my tongue out of my cheek, and move onto one cross-marketing opportunity that I have agreed to, because it benefits the readers of this blog and involves what promises to be an outstanding educational opportunity. The American Conference Institute is hosting what looks to be a very broad and in-depth examination of current hot topics in ERISA litigation next October in New York, and this blog has signed on as a media sponsor. As per our continuing non-commercial status, no money in it for us, but it gives readers of this blog an opportunity for a substantial discount if they register in the next couple of weeks for the seminar. Just use my name and tell them I sent you. Just kidding - the actual information and manner of laying claim to the discount is right here.
The brochure for the conference itself can be found here. I signed on as a media sponsor for the same reason I think readers may be interested in the seminar, which is that the list of topics reads like a table of contents for the blog; thus, light dawned over Marblehead here and I realized if you read this blog regularly, you would probably be interested in the subjects being addressed at the conference. Beyond that, you will see the speaker list (here comes the pun) speaks for itself.
Pension Fiduciaries in the Hot Seat - What to Avoid and How to React if Sued
I and a cast of thousands will be speaking at a webinar on April 14th on “Pension Fiduciaries in the Hot Seat - What to Avoid and How to React if Sued,” put on by Pension Governance, Inc. Well, its not really a cast of thousands, just me and four very experienced worthies, who know so much about the subject that they seem like a cast of thousands.
I have to say that, long before ever being invited to participate in one of Pension Governance’s webinars, I attended as a member of the audience, and not only found them informative but enjoyable as well.
Wrongs That Can't Be Remedied: ERISA Preemption and Limited Statutory Remedies
Paul Secunda, the law professor formerly known as the workplace prof, has a new law review article out on the “wrong without a remedy” aspect of ERISA litigation, which is the fact that the broad scope of preemption can combine with the limited range of remedies available under ERISA in a way that makes some alleged wrongs involving employee benefit plans simply not redressable. Notice that unlike many commentators, including Paul in his article, I call it an aspect of ERISA litigation, rather than a problem, as, contrary to Paul’s article, I am not convinced this isn’t the logical outcome, rather than the problematic distortion, of the original statutory structure. Either way, there is certainly room to argue over whether, and if so what, should be done about this aspect, and Paul provides his own version of changes that could be enacted legislatively or by judicial development to eliminate the “wrong without a remedy” scenario. I don’t necessarily agree with all of his points or his reasoning, but its an interesting read and presents some interesting approaches. Moreover, I am on record - I guess as part of a Greek chorus at this point - with my criticism of legal scholarship that is simply part of a hermetically sealed circle of philosophical commentary, without adding value to practicing attorneys, courts, or the legal system as a whole. Paul’s article avoids this problem, I am happy to report, in two ways, making it something worth recommending as reading to practitioners. The first is that the article provides a highly readable, educational (and cite-able) survey of the historical and current state of the law of preemption. The second is that the article thoughtfully shifts the nature of the discussion of this problem from the general fixation on the preemption prong, which is usually the focus of the discussion in commentary and in litigation, to the remedies part of the problem, posing the idea that preemption is broad enough to preclude adding state law causes of action to benefit plan cases, and that instead the place to look to end the “wrong without a remedy” conundrum, which Paul has called in other places the “grand irony of ERISA,” is to the statutory remedies under ERISA and to whether they can be expanded by judicial development or legislative fiat. In the courtroom, in cases involving the clash between preemption of state court remedies and the limited nature of the relief available under ERISA, the focus tends to be on the scope of preemption; Paul, in his article, posits that it would make more sense to simply start the analysis, and any response to this issue, from the premise of accepting the broad scope of preemption, and then go from there.
The article is titled “Sorry, No Remedy: Intersectionality and the Grand Irony of ERISA,” and can be downloaded here.
BrightScope and 401(k)s
Holy Transparency, Batman! If you like Zillow, and you have a 401(k) plan, have I got a website for you. BrightScope has now publicly launched its rating website, in which you plug in a particular company’s name and the site then provides you with a colorful, graphic presentation of that particular plan’s performance and structure in comparison to certain benchmarks and comparable companies. Its simply a lot of fun, and, moreover, allows an easy, quick overview of a particular plan, without having to wade through all of the paper information for a particular plan. This facet alone makes it worthwhile, in a world in which plan participants really do need an understanding of the details of their companies’ 401(k) plans but may not have the time or expertise to parse the documents themselves. I certainly am not advocating limiting participant education to checking BrightScope, but every piece of information - the more accessible and transparent the better - helps. At the end of the day, its been my experience that, in all areas of the law, the more information, the less litigation, and I think that is clearly the case with regard to retirement funding. Remember that piece of folksy wisdom the next time you see someone pause in the face of government moves to increase 401(k) plan disclosure and transparency.
I have actually been playing with their site for awhile, while it was in testing, but its now been publicly unveiled, so you can go there yourself and see what I am talking about. I could say more about the site, what it does and how it runs, but I don’t have to, because Josh Itzoe has done it for us, right here, and you can go test run it yourself now, right here.
ERISA Litigation: An Update from the Front Lines
When John Calipari was the basketball coach at the University of Massachusetts, he was famous for saying that he would play anyone, anywhere, at any time. I like to say - and did in my seminar a couple weeks ago covering current trends in ERISA litigation - that I will likewise speak to anyone, anywhere, at any time about this subject.
Well, one of the great things about publishing a blog is you can take this sentiment one step further, beyond talking anywhere to anyone at anytime, and publish what you have to say. And with that, here is the material I presented to the ASPPA Benefits Council of New England in a seminar a couple of weeks ago, entitled “ERISA Litigation: An Update from the Front Lines.”
Talkin' ERISA Litigation Trends
I will be presenting a seminar next week, on Wednesday January 14th, to the ASPPA Benefits Council of New England, entitled “ERISA Litigation: An Update from the Front Lines.” After three full days of outlining my talk, I now actually have a pretty good idea of what I am going to say; the talk will blend the latest developments nationally and at the Supreme Court in ERISA law with ERISA litigation trends and realities in the First Circuit. If you are interested in attending, its not too late to register. The brochure and registration form for the talk is here.
On Education and Repetition
Well, I think Roy Harmon and I (mostly Roy, actually) just previewed for you what this webinar plans to cover, the ethical and privilege traps involved in providing legal counsel to ERISA governed plans and their administrators. Still - luckily for people like me and Roy who blog on these subjects and for the presenters of the seminar - there is literally always more to be said about these types of topics. That point was made crystal clear by this article here, which details a court ruling waiving the attorney-client privilege as a result of electronic discovery mistakes, just days after I posted - for the upteenth time - on my qualms about the impact of electronic discovery on clients, costs, and litigation, particularly in the data intensive realm of ERISA actions.
On the other hand, here’s a seminar on everything topical in ERISA breach of fiduciary duty litigation, presented by a who’s who’s of practitioners, which, by its description, is covering a lot more ground than can be trod by a few lone bloggers.
A Thanksgiving Week Feast
Some of the more prolific bloggers manage to be prolific by posting short notes on various topics of interest written by others, which isn’t my usual style. But over the past week or so I have managed to back up a good stack of things that I have wanted to talk about in detail, but haven’t had the time to comment on. So in the spirit of a Thanksgiving host laying out a big spread, here’s a whole bunch of things at once:
First, here is a good follow up story providing more detail on Wal-Mart’s success in defending itself against excessive fee litigation, a topic I first discussed in this post here. This particular story, in PlanAdvisor, does a nice job of illustrating the point I made in my earlier post, which is that the court, in ruling in favor of Wal-Mart, did not focus on or analyze the propriety of the particular fees themselves, but rather focused on the method used by the fiduciary to select the investment options in question and whether that was prudent. Interestingly, the article describes the Wal-Mart investment menu, and it reads like one you would find in just about any 401(k) plan. Does this suggest that most plans are actually fine on this front? Or might it suggest that fiduciaries as a whole accept fees that are too high, and that perhaps comparing a particular plan’s investment choices, such as Wal-Mart’s, against industry benchmarks is not really the right focus for deciding whether the fees in a particular plan were too high? Just asking.
Second, here’s one court’s answer to an oft asked question: is a plan participant seeking benefits entitled to attorney’s fees for the administrative appeal portion of his claim?
Third, here’s an interesting webinar rounding up the Supreme Court’s treatment of ERISA issues during the 2008 term. The Court’s fascination with ERISA during the past year has been well documented and the biggest item of discussion in ERISA related media, and pretty much everything about those developments has been chronicled on this blog and a million other places. But if you haven’t seen it all enough by now, the webinar may be for you. Interestingly, one of the topics noted in the webinar is the Court’s involvement in a case, still pending and not yet decided, concerning waivers by divorcing spouses of plan benefits. This is the quickly becoming infamous Kennedy case, which to date has caught the eye for two reasons: first, many people have some question as to why the Court took on this case and whether it merited the Court’s involvement, and second, because of the Court’s decision to seek supplemental, post-argument briefing on the very basic issue of the extent to which plan administrators are bound - barring an effective QDRO - to the express written terms of a plan. As a very experienced benefits consultant recently commented to me, the Court is going to upturn an awful lot of apple carts if, intentionally or even (probably by accident) implicitly, they indicate that administrators are not strictly controlled by the actual written terms of the plan instrument. As a result, a case that started out as perhaps the least substantively significant of the ERISA cases taken up by the Court in the past year threatens to become one of the more disruptive to settled practices, in a manner similar to how the Court reopened much settled thinking on fiduciary duty issues by indicating in LaRue that rules long established in the defined benefit context may not hold true for all other situations.
Okay, that clears some of the backlog.
From Preemption to ERISA Standing, and Lots of Things In-Between
Permalink | Philadelphia, New York, court hearings - I have been everywhere the past week or so other than at my desk where I could put up blog posts. Here’s a run down of interesting things I came across along the way that you may want to read. First, for those of you who can’t get enough of this topic - I know I can’t, but then I am fascinated enough by this stuff to maintain an entire blog on the subject of ERISA - Workplace Prof passed along this student note on preemption and “pay or play” statutes: Leslie A. Harrelson, Recent Fourth Circuit Decisions: Retail Industry Leaders Ass'n v. Fielder: ERISA Preemption Trumps the "Play or Pay" Law, 67 Maryland L. Rev. 885 (2008).
Second, SCOTUS passed along that the Supreme Court decided not to accept for hearing Amschwand v. Spherion Corp., which, I noted in a previous post, presented an opening for the Court to address when monetary awards for breaches of fiduciary duty can qualify as equitable relief that can be sought under ERISA. I have commented before that the Court has advanced the ball on equitable relief under ERISA into almost untenable terrain, and I am not sure whether the Court can bring any greater clarity to the issue without backtracking from its recent jurisprudence on the subject; given the unlikeliness of the Court doing so already with regard to such relatively recent decisions, it is probably just as well that the Court did not take on the issues presented by that case.
Third, you could learn everything you need to know about the standards of review for benefit denials and the impact of the Supreme Court’s decision in MetLife v. Glenn by clicking on the “Standard of Review” topic over on the left hand side of this blog; or you could spend an hour listening to this webinar on the topic.
Fourth, Pension Risk Matters passes along this Sixth Circuit decision enforcing the Supreme Court’s approach to individual claimants in LaRue, finding that two participants could sue for breach of fiduciary duty. There are two particularly interesting side notes about this. First, it illustrates a particular point I - and others - made in a number of media outlets after the Supreme Court issued its opinion in LaRue, namely that, while it may not result in an avalanche of litigation that otherwise would not have been filed, the ruling is certainly going to lead to an increase in the filing of smaller cases on behalf of a few participants in circumstances that, in the past, would not have generated suits unless a class wide action could be brought. Second, the case presages what may be the dying off, by a thousand cuts, of the long held use of standing to cut off ERISA breach of fiduciary duty suits at the earliest stages of procedural wrangling, long before any litigation over the merits of a case, something which occurred at the federal district court level in the original LaRue case itself. Roy Harmon, over at his Health Plan Law blog, has a detailed analysis of this question, one I have been thinking about since LaRue was decided but which Roy has thankfully saved me from addressing in detail at this point.
Passing Along Some Reading on Excessive Fee Cases and Other Timely ERISA Topics
Permalink | What would this blog be if it was done as a newsletter instead? Well, probably something like this new ERISA newsletter out of Proskauer Rose, with its detailed but readable length discussions of current events in the field, such as the Supreme Court’s recent decision in LaRue and the Supreme Court’s consideration of whether to hear a case that will allow it to return again to the problem of defining the available scope of equitable relief under ERISA. For me personally, I particularly liked the discussion of the latest trends at the trial level in the federal court system with regard to lawsuits filed over allegedly excessive fees charged on mutual fund investment options, as it takes an approach that I like to pursue whenever possible in my own posts here on this blog: it discusses the early decisions on the issue at the motions stage in the trial courts, and looks ahead to what this may mean for the industry as a whole and service providers. Its worth a read, and if you enjoy this blog, you will almost certainly enjoy this newsletter as well.
Want to Learn More About the Post-LaRue World?
Permalink | I am trying to kick the LaRue habit, but couldn’t resist going back to the well one more time (how’s that for mixing my metaphors?). I know from readers of this blog and from talking to other lawyers that people are very interested in LaRue and the Supreme Court’s current interest in ERISA cases - in fact, one lawyer told me that right after LaRue was decided he was at a meeting on an entirely different topic but LaRue is all anyone wanted to talk about that day- so I wanted to pass along this very interesting looking teleconference next month on individual 401(k) suits post-LaRue. The faculty includes Tom Gies, who represented the plan and its sponsor in LaRue, and Karen L. Handorf, an attorney currently in private practice who previously worked for the Office of the Solicitor of Labor, background that may make her ideally suited to comment on one of the biggest mysteries of all raised by LaRue and the Supreme Court’s selection for its docket of two more ERISA cases, namely what’s with the Supreme Court’s sudden fascination with ERISA litigation.
Conducting an ERISA Self-Audit
Permalink | We spend a lot of time here at the blog talking about lawsuits, causes of action, and court rulings concerning ERISA issues; the name of the blog, after all, is the Boston ERISA and Insurance Litigation blog. But every litigator knows that the flip side to a lawsuit is prevention, and the key to prevention in the employee benefit world is the ERISA self-audit, whereby a plan investigates itself to ensure compliance and avoid subsequent government action or private litigation. For those of you interested in this “ounce of prevention is worth a pound of cure” approach, here’s an interesting looking teleconference on key topics in conducting such an audit.
More Education is Always Better than Less: American Conference Institute's Upcoming Seminar on 401(k) Risks
I mentioned in yesterday’s post that my goal for the week was to move rapidly through several items that had caught my attention over the last week or so, and that I wanted to pass on to readers of this blog. I thought the next one I would mention is this conference in New York in December, sponsored by the American Conference Institute, on litigation and regulatory issues related to 401(k) plans. The subject matter of the conference ranges across the hottest topics in litigation and potential exposures for sponsors and fiduciaries of 401(k) plans, including stock drop litigation, excessive fee issues, and in a topic that hits both primary subjects of this blog, insurance coverage for fiduciary liability risks. Here’s the brochure for the conference.
20th Annual ERISA Litigation Conference
Permalink | I wanted to pass this along while the electronic brochure was still (fairly) hot off the metaphorical presses and cooling off in my in-box. Here’s the information for West Legalworks’ 20th Annual ERISA Litigation Conference, held in, well, probably the three best places you could pick: Florida in February, and California and New York City in the fall.
On a more analytical note, what really jumped out at me is the conference’s focus this year on what the marketing materials describe as “ the continuing lessons from the post-Enron wave of litigation over employer stock investments in 401(k) and ESOP plans and . . . the current wave of decisions addressing whether former employees who withdrew their plan balances before bringing suit have standing,” as well as on the “impact of procedural violations of the claims and appeal regulations [and] [t]he recent crop of preemption cases,” all topics that have been discussed extensively over the past year here on this blog.
Introducing Pension Governance LLC
Permalink | I have talked before about my tendency to veer from my appointed rounds when something more interesting appears on the horizon than that which I had planned to work or post on, and today is another one of those days. I came in full of grand hopes to discuss insurance coverage for intellectual property risks and discovery issues in insurance bad faith cases, using two upcoming seminars on those topics as a foundation from which to riff. Those can wait for another day, and I will return to them, either over the weekend or next week, but something more interesting appeared on the horizon this morning that I wanted to post on, and that is likely to be of interest to those of you who read this blog out of a professional interest in ERISA and how it applies to 401(k) plans and pensions, namely, the launching of Pension Governance LLC, a subscriber website providing independent advice and information for pension investment fiduciaries. Among other features, the website, http://www.pensiongovernance.com/home.php, provides analysis, research and commentary on issues affecting defined contribution and defined benefit plans; interviews with industry leaders; annotated online articles from a variety of news sources; access to research team members; original content from expert practitioners; and educational webinars.
Readers of this blog who have been curious enough to peruse either the “About Stephen Rosenberg” part of this blog or the what’s new section of my firm’s website already know that I am a member of the website’s editorial board; I have already submitted one article for the site, and am looking forward to contributing still more to it.
While I am excited about the launch of the website, that’s not the only reason I write about it today. The more urgent reason for writing about it today, and to introduce Pension Governance to you right on the heels of its launch, is that the site is currently offering a free two week trial subscription, and I think the information that it makes available will be of interest to many who read this blog.
Investment Management Fees, and Contract Geeks
Two things to chew on over the holiday, other than the turducken (I have always wanted to use that word in a sentence), one to know about before it occurs, the other to note before it disappears. I guess I could take that dichotomy a little further, and note that one concerns the first half of the blog’s title, and the other, the other half.
The first: Susan Mangiero, who writes the excellent blog Pension Risk Matters, is hosting a webinar on November 28 covering issues related to investment fees, the management of 401(k) plans, and fiduciary obligations. The webinar, covering “401(k) plan fees - what they are, how they can affect reported performance and the fiduciary practices that address investment management fees” is driven by the fact that:
In the aftermath of the Pension Protection Act of 2006, 401(k) plan sponsors are required to carefully select "fiduciary advisors", identify appropriate default investment choices for participants and comply with more rigorous federal reporting procedures. All of this could spell trouble for retirement plan fiduciaries who fail to realize that regulation, public awareness and employee angst put them in the spotlight as never before. This is especially apropos with respect to plan fees.
You can find more information on the webinar here.
The second: Insurance coverage lawyers, almost by definition, have to be contracts geeks. At the end of the day, what they are really doing is fighting over the language in contracts, a particular type of contract certainly, but contracts nonetheless. And here, before it vanishes from the internet, is the story of how much money there is in not being a contracts geek.
19th Annual ERISA Litigation Conference
West Legalworks has announced the time, place, faculty and subject matter for its annual ERISA Litigation Conference, the 19th ANNUAL ERISA LITIGATION CONFERENCE: The Nation's Leading Forum on How Current Rulings Affect Claims, Plan Design and Operations.
For those of us who litigate cases governed by ERISA and who like this stuff, this one looks like fun.