I have argued many times on these – virtual – pages that fair share acts, and their backers’ obsession with trying to circumvent ERISA preemption, puts the cart before the horse, in that they focus on putting more health insurance obligations on employers without addressing the real reasons that employers struggle to provide health insurance, which is its ever expanding cost. Stories like this one here make me think that I have understated the case, and that demanding more insurance out of employers, without tackling the cost problem first, isn’t just putting the cart before the horse, but is actually just plain wrong headed, and bordering on the willfully obtuse (not to put too fine a point on it). It is all well and good to insist that everyone should have health insurance and access to health care, but simply blindly assuming that employers can pay for it is a mistaken premise that sits at the base of all fair share acts. It is cost that is driving the access and uninsured problem, an issue that is not addressed to any real degree by fair share acts, including the one in Massachusetts and the San Francisco version that has so far managed to survive preemption challenges.

I cannot do better by anybody interested in fiduciary obligations under ERISA than to recommend to you the First Circuit’s decision the other day in Bunch v. W.R. Grace & Co.. For those of you not familiar with the lower court proceedings in that case, what was at issue is whether it was a breach of fiduciary duty to sell company stock, rather than maintain it as an investment option, after retaining outside advisors to investigate the stock’s value, potential and appropriateness as an investment option. At the District Court level, and again now on appeal, the courts have found the fiduciaries’ conduct to be almost literally above reproach with regard to the handling of this issue. The First Circuit’s brief is notable for two points. The first is its synopsis of the duties of a fiduciary with regard to investment options, including company stock, and the court’s emphasis on the fact that it is the appropriateness of the fiduciaries’ conduct in the face of uncertainty that must be judged, not the dollar value outcome of any particular investment decision in isolation. As the First Circuit opinion noted:

what ERISA calls for from a fiduciary is that it use the "care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims." 29 U.S.C. § 1104(a)(1)(B). As the district court aptly stated, "in common parlance, [what] ERISA fiduciaries owe participants [are] duties of prudence and loyalty," Bunch, 532 F. Supp. 2d at 288 (citing Moench v. Robertson, 62 F.3d 553, 561 (3d Cir. 1995)). The district court noted that other courts faced with allegations similar to those of appellants in this case had looked at the totality of the circumstances involved in the particular transaction. Id. Among the key decisions relied upon by the district court for reaching this conclusion was DiFelice v. U.S. Airways, Inc., in which that court stated: [W]e examine the totality of the circumstances, including, but not limited to: the plan structure and aims, the disclosures made to participants regarding the general and specific risks associated with investment in company stock, and the nature and extent of challenges facing the company that would have an effect on stock price and viability.

And second, if you want to read an outline of what a thorough and, once in court, easily defensible, course of conduct by a fiduciary looks like when it comes to investment options, it’s the underlying course of action by the fiduciaries that is described in the First Circuit’s opinion.

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.

If you do want to read more on it, though, try here and here.  

 

 

 

Sorry, couldn’t resist – Bill being William Kennedy and Liv Kennedy being the named beneficiary in yesterday’s Supreme Court opinion, Kennedy v. Plan Administrator for DuPont Savings and Investment Plan. After reading the opinion itself last night, I thought I would add a couple of comments to my initial impressions of the opinion, which I discussed in yesterday’s post. Initially, from a practical perspective for plan administrators, drafters, sponsors, and the like, the opinion is exactly what it should have been and, in fact, had to have been. I was chatting with a veteran benefits consultant who services retirement plans a while back about this case while it was still pending before the Supreme Court, and he commented that anything other than a clear pronouncement that administrators are to follow the express terms of the plan, rather than have to go outside the plan and weigh the implications of external events such as a divorce proceeding, would create a terribly chaotic situation. The Supreme Court could not have been more clear in its opinion that it was rejecting that possibility, repetitively reinforcing the idea that administrators act properly by relying on the plan documents; indeed, the ruling really required reciting this idea only once, but instead the Court built a long opinion around the repeated reinforcement of that idea.

Second, I noted yesterday that I wouldn’t have minded some clearer guidance on QDROs as part of the opinion, and on close review of the opinion I think we got some, although not explicitly. The Court, rightfully so, emphasized that the QDRO is the one time that an administrator faced with the divorcing participant and designated beneficiary scenario must incorporate court rulings outside the plan documents into the administrator’s application of the plan terms to determine to whom benefits must be paid. What has been more of an issue in practicality, in the courtrooms of the federal district courts, is to what extent a particular court order must perfectly comply with the statute’s QDRO requirements to be a binding QDRO for purposes of ERISA; many court decisions treat divorce decrees that are close enough to meeting the requirements as QDROs, even if they do not meet each and every statutory requirement perfectly, so long as there is enough there to convince a court that the participant and the ex-spouse intended for the ex-spouse to no longer be the beneficiary.

I would argue that the Supreme Court’s discussion at page 16 of the opinion, read in conjunction with footnote 12, indicates that the QDRO requirements must be perfectly matched by a probate court order for such an order to qualify as a QDRO, and that close – even if good enough for horseshoes – is not good enough for qualifying as a QDRO that would trump a beneficiary designation under a plan’s express terms. Why do I say this? In describing QDROs as the one exception to the Court’s preferred ideal of the administrator not having to go outside the plan documents to decide cases such as this one, the Court explained that QDROs require a “relatively discrete” inquiry that is based on a specific “statutory checklist” that “spare[s] an administrator from litigation-fomenting ambiguities.” The Court then proceeded to list the exact statutory requirements that must be satisfied for a divorce order to qualify as a QDRO. If, as lower courts sometimes appear to believe, close is good enough to qualify as a QDRO, then the issue is not a discrete, precise inquiry – as the Court depicts the QDRO inquiry – and is, contrary to the Court’s interpretation of the QDRO requirements, one that leaves, rather than spares an administrator from, “litigation-fomenting ambiguities” over the question. Indeed, while a plan administrator can make its own call on whether an order is a QDRO if the exact, specific statutory requirements must be satisfied for a particular order presented to the administrator in a particular claim to qualify, this isn’t easily done if something less than complete compliance with the statutory formalities can be sufficient to qualify as a QDRO. In that latter circumstance, whether the order is close enough to qualify is in the eye of the beholder, and you can be certain that the party that didn’t get the proceeds based on the administrator’s judgment call on this issue will sue over the question.
 

Here’s the early word on the Supreme Court’s ruling in Kennedy v. Plan Administrator for DuPont Savings and Investment Plan, which revolved around the issue of divorce decrees, the QDRO requirements of ERISA, and whether – in the absence of a valid QDRO – a plan administrator can rightly just pay proceeds to an ex-spouse of a plan participant if the participant never removed the ex as a beneficiary. I have only read this analysis of the case from SCOTUS blog (I will read the opinion itself tonight), but the answer appears to be the same as what most of us have always assumed to be the case: that in the absence of a probate court order that satisfies the statutory requirements in a particular circuit for constituting a QDRO, the money gets paid as per the express terms of the plan itself and any existing beneficiary designation, without regard to any extrinsic divorce agreement that might have mandated otherwise.

Simple enough, although in at least some circuits there is some ambiguity as to exactly what constitutes a QDRO, for instance in how closely the statutory requirements must be complied with. Perhaps the opinion, once I look at it, will shed some light on this question as well.

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.”

I like when you sort of hit the zeitgeist in things you write and talk about. I mentioned in a post last week that I would be presenting a seminar to the ASPPA Benefits Council of New England on current trends in ERISA litigation, and I presented the seminar yesterday. As I gave the talk, a theme unfolded: namely, that the confluence of economic problems and the unsettling of many apple carts when it comes to the rules governing ERISA related litigation (a perfect case in point being the majority’s suggestion in LaRue that litigants and lower courts should feel free to reconsider precedents established in defined benefit cases when confronting disputes over defined contribution plans such as 401(k) plans) means we are looking at an expansion of litigation, perhaps in the overall number of suits and, if not, at least in the complexity, dollar value and expense of the suits that are brought. I noted this to be a particular issue with regard to stock drop and excessive fee cases, particularly in the current stock market meltdown.

Well, lo and behold, today here comes this report, from Seyfarth Shaw by means of Global Pension:

The Seyfarth Shaw Workplace Class Action Litigation Report showed last year, the top ten settlements for Employee Retirement Income Security Act-related (ERISA) class action cases topped US$17.7bn, a dramatic increase from the $1.8bn paid out in 2007 . . .“There is an explosion in class action and collective action litigation involving workplace issues. The present downturn in the economic climate is likely to fuel even more lawsuits, and the financial risks in this type of employment litigation can be enormous . . .” The firm said this trend was likely to continue, with particular reference to cases being brought over “stock drop” complaints – in which ERISA plan members brought action over the availability of employer’s equities as an investment option and “plan administration” cases, whereby participants brought action over ‘excessive’ advisory fees and other elements of plan administration.

By the way, I really like Josh Itzoe’s post here on the new DOL investment fee disclosure rules, which consists of a well-done interview by e-mail with Los Angeles lawyer Fred Reish. I have noted before that the interview style blog post is the most difficult to do well, and Josh pulls it off with panache. Not only that, but he and the interviewee still manage at the same time to educate the reader on the meaning and significance of these new regs. It’s a nice five minute investment of time in continuing education, for those of you interested in the subject.

What would a 401(k) plan look like if you could create the fantasy football version (fantasy 401(k)?) for your company? Well, thanks to the good folks at Brightscope (I have only the vaguest idea at this point who they are and what they do, but I am already enjoying their new blog), you don’t have to wonder anymore – it would look something like this one right here, offered by the Saudi Arabian Oil Company. Low fees, great company contributions, high participation, high dollar values in individual participants’ accounts. The description of the plan reminds me of something I have often discussed on this blog, which is the idea that there is an inverse correlation between ERISA litigation brought by participants and the extent of retirement risk that particular plans impose on the participants; for instance, pension plans generated only a relatively low level of participant driven litigation because most of the financial risk related to pensions rested with the sponsor, but defined contribution plans will generate more participant driven litigation, because such plans transfer the risk (and thus the corresponding motivation to remedy the risk and eliminate losses by means of litigation) onto participants. A plan such as the one highlighted here by Brightscope, I suspect, would generate almost no participant driven litigation.

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.