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.

Cool, what a nice treat to me for the first real workday of the New Year. I have always wanted a reason to link to the Harvard Law School Corporate Governance blog because, well, it just sounds so impressive (that plus it’s a really good read on all things corporate), and one of their contributors handed me the opportunity over the weekend. In a post addressing SEC requirements for online posting of public company proxy materials, the author – a Gibson Dunn partner and visiting professor at Georgetown – points out how these requirements differ from the notice requirements under ERISA:

Compliance with notice and access [rules under the SEC requirements] is not likely to satisfy the requirements for electronic delivery of materials under the U.S. Department of Labor standards for participants in ERISA-covered defined contribution plans, such as 401(k) plans and employee stock ownership plans. Section 404(c) of ERISA permits electronic delivery only if a participating employee has the ability to effectively access documents furnished in electronic form at any location where the participant is reasonably expected to perform his or her duties as an employee and for whom access to the employer’s information system is an integral part of the employee’s duties (e.g., a networked desktop computer at work), or if the employee provides written consent accepting delivery of information electronically. As a result, although an issuer may rely on notice and access for permitted employees and consenting employees, other employee participants should receive paper delivery of proxy materials.

You know what’s interesting about this? The focus on procedural aspects of providing information to plan participants (and others, with regard to the SEC rules). We could use an equal level of attention and agreement when it comes to the amount, type and transparency of the information provided to plan participants in particular, something more important than just the formal procedures by which it is provided.

I noticed in my statistics package for the blog that this past Thursday, Christmas Day, had the lowest readership of this blog in months. Come on people, ERISA is for everyday, not just workdays! And here’s why. The day before Christmas, the Second Circuit issued its ruling adjusting its case law on benefit determinations where a structural conflict of interest exists to accord with the Supreme Court’s recent ruling in MetLife v. Glenn. In a well reasoned and highly logical opinion, the court first acknowledged that its prior case law on the issue was no longer proper, in light of the Supreme Court’s ruling, because it had gone too far: the Second Circuit previously held that a structural conflict of interest meant that de novo review applied, even if the plan documents granted the administrator discretionary authority over benefit determinations, which normally invokes a deferential standard of court review. However, as the Second Circuit recognized, the Supreme Court’s ruling in Glenn meant that a structural conflict of interest could not be the basis for abandoning the deferential standard of review, but that, instead, it could only be considered as a factor to be weighed in applying the deferential standard to decide whether the administrator’s decision should be set aside as an abuse of discretion. Nothing controversial or particularly exciting there, as it reflects an accurate, almost verbatim reading of Glenn, although it is interesting to watch the way the Glenn decision, seen as one that broadens the protections available to plan participants, actually, in at least some instances such as this one in the Second Circuit, requires a lessening of the protections previously granted to participants in such jurisdictions in cases involving structural conflicts of interest. The Second Circuit previously allowed such a conflict to change the standard of review entirely, all the way back to a de novo review, which the Second Circuit, in its most recent ruling, now recognizes is not allowed under Glenn.

What is more interesting, though, is how the Second Circuit applied the new standard. By relying on the leeway the Supreme Court in Glenn granted courts to determine, based on the actual facts of the claim and the parties’ activities, how much weight to give to the conflict, the Second Circuit, in essence, applied what may as well have been de novo review to decide the case, only without putting such a label on it. Instead, accepting the Supreme Court’s invitation to review the actual facts of a particular case to decide how much weight to put on a conflict, the Second Circuit gave great weight – essentially outcome determinative weight – to the conflict, in a way that essentially mirrored de novo review.

The case is McCauley v. First Unum.

 

A few months back, I discussed the broad conception of damages in stock drop type cases articulated in the case of Bendaoud, which essentially found that damages exist if the participant could have done better in an alternative investment option. This concept makes it fairly easy to construct a damages theory in 401(k) and ESOP cases that will survive the scrutiny of a motion to dismiss, and that can support a significant award of damages. A prerequisite to getting to the damages analysis, however, is a basis for attributing an actionable error in the plan to the fiduciaries; the fact that a participant could do better in a different investment is irrelevant if there was no mistake in offering the original investment option in the first place.

That, however, is not too hard to show either. The bar, for instance, is low when showing that offering company stock as an option is an actionable error. For instance, "a stock can be imprudently risky for an employee savings plan even in the absence of fraud or imminent collapse,” according to a federal judge sustaining an ERISA case against Ford alleging that the offering of company stock as an investment option was a breach of fiduciary duty, given the extensive problems in the industry at the time and the lack of broad disclosure of how those problems may affect the investment.

With numerous major industries heavily roiled, and a stock market that has tanked, I can’t say that it should really tax the imagination of any good lawyer to come up with both damages to participants and errors by plan fiduciaries in any case involving the inclusion of company stock in a retirement plan or ESOP.

Sometimes the Zeitgeist is hard to read, other times it hits you smack in the face with a two by four. As we move towards the end of the year (the business year anyway, as we all know how much work actually gets done between Christmas eve and New Year’s day), the constant drumbeat of news drives home one unassailable fact, which is that ignorance cannot possibly be bliss when it comes to investing, particularly with regard to pension and 401(k) funds. From Madoff (hey, what an amazing long term track record; lets put our money there without further analysis) to pension plan fiduciaries buying CDOS they know nothing about based solely on the recommendation of the seller, it has become obvious that a little – or more – knowledge would actually be a wonderful thing. Josh Itzoe, author of “Fixing the 401(k): What Fiduciaries Must Know (And Do) To Help Employees Retire Successfully,” thinks so too, and has elected to step into the breach, launching a new blog, not coincidentally also titled Fixing the 401(k), intended to provide commentary and information related to the business of retirement investing.

As anyone who has read Josh’s work knows, he firmly believes that problems ranging from a lack of transparency to excessive fees to a host of other problems bedevil the industry, and certainly the past year has done little to undercut his thesis. It should be helpful to have his voice added to the commentary already out there.