Supreme Court Requests DOL Opinion in Tibble v. Edison Petition

Today, March 24, 2014, the Supreme Court announced the results of their Friday conference where the plaintiffs’ cert petition from the Tibble v. Edison International case was considered. In a surprise move, the Supreme Court has asked the Solicitor General of the United States, working in conjunction with the Secretary of the Department of Labor, to file a brief offering their view on the issues. We have previously discussed the 9th Circuit opinion that plaintiffs are seeking to have heard, the rehearing opinion issued by the 9th Circuit panel, and the plaintiffs’ petition to the Supreme Court.

Many might remember that this is exactly what happened in Fifth Third Bancorp v. Dudenhoeffer, the case set for oral argument before the Supreme Court on April 2 concerning stock stop cases and the so called Moench Presumption. There, the Supreme Court requested the DOL’s views and shortly thereafter granted the petition to hear the case. (to read the briefs from the Fifth Third case, head over to the SCOTUSBlog website which is the preeminent source for information related to the Supreme Court)

As a reminder to our readers, the plaintiffs in Tibble are seeking to have the following issues heard by the Supreme Court:

1. Notwithstanding the ongoing nature of ERISA’s fiduciary duties, does the statute of limitations under 29 U.S.C. §1113(1) immunize 401(k) plan fiduciaries for retaining imprudent investments that continue to cause the plan losses if the funds were first included in the plan more than six years ago?

2. Does Firestone deference apply to fiduciary breach actions under 29 U.S.C. §1132(a)(2), where the fiduciary allegedly violated the terms of the governing plan document in a manner that favors the financial interests of the plan sponsor at the expense of plan participants?

In our opinion, these issues are ripe for decision by the Supreme Court. Defining exactly how the 6 year statute of limitation should be interpreted would provide needed clarity to both plan participants and plan sponsors. Additionally, as we mentioned last week, the issue of deference to ERISA fiduciaries could not be more timely, as the 8th Circuit in the Tussey v. ABB appeal found that the district court should have viewed the action of the ABB defendants with regard to investment decisions at issue in the case through a lens of deference. The idea of deference as to the interpretation of a fiduciary’s own duties under ERISA is not something that appears in the plain text of the statute and is a relatively new court created doctrine. There is much disagreement in the legal and scholarly community so to whether deference is appropriate and we should expect to hear those opinions voiced in the coming weeks.

As to what the DOL will say, we can be reasonably sure they will agree with the plaintiffs as to the statute of limitations issue, as they are on record many many times in filed amicus briefs supporting an interpretation that is favorable to plan participants. As to the issue of deference, I am not aware of any previously filed positions by the DOL but I wouldn’t be surprised to see them agree with the plaintiffs again on this issue.

If that is the case, then the question becomes, what will the Supreme Court do? Will they agree to hear the case? In the last go around with the Fifth Third petition, many legal observers made the argument that when the Supreme Court asks for the Solicitor General’s opinion, it greatly increases the chances the case will be heard. (for the truly interested, this law review article does a very good job of empirically analyzing the success of petitions when a response is requested and when the solicitor general’s opinion is requested, both of which happened here)

We here on this blog are not in the business of tea leaf reading and we will not make a prediction. Instead, the only thing we can promise is that when the DOL files their brief and when the Supreme Court makes their decision,  you will hear about it here expeditiously.

Tussey v. ABB Affirmed, Reversed, and Vacated in Part by 8th Circuit

by Thomas E. Clark Jr., JD LLM – March 19, 2014

Today, March 19, 2014, the 8th Circuit Court of Appeals affirmed, reverse, and vacated the trial court’s decision in Tussey v. ABB. The decision is effectively a mixed bag for plan sponsors, participants, and service providers.

In summary:

(1) The plaintiffs won the issue of excessive recordkeeping fees against ABB. This will stand barring any appeals by ABB;

(2) ABB won a procedural victory on the issue of share class choice and the mapping of the Wellington Fund to the Fidelity Freedom Funds. The district court will have to decide the issue again, as explained below, using the guidance as provided by the 8th Circuit; and

(3) Fidelity won the issue of float interest. It has now defeated all claims against it, barring any further appeals by the plaintiffs.

Let’s dive in:

Fiduciary Discretion

The opinion starts with a discussion of whether plan fiduciaries are entitled to a certain level of discretion in having their decision making analyzed by a court. The defendants in the case wanted the decisions to be looked at through an “abuse of discretion” standard vs. a “de novo” standard advocated by the plaintiffs. This is a highly contested issue right now, as providing a fiduciary with discretion in interpreting their own fiduciary responsibilities is not explicit in the ERISA statute. Instead, it is has become a creature of case law, starting with the Fire Stone case and recently being a lynch pin in the 9th Circuit’s decision in Tibble v. Edison. The very issue is in fact still being petitioned to the Supreme Court by the plaintiffs in Tibble, which goes to conference this Friday to decide whether the Supreme Court will hear the case.

Of important note, the 8th Circuit rejected ABB’s argument that all breaches found by the district court were only breaches of the plans’ IPS, rather than independent breaches of ERISA’s fiduciary duties. As such, the 8th Circuit declined to rule whether an IPS is or should be considered a “plan document.”

Nonetheless, the 8th Circuit has concluded that the district court judge failed to analyze the fiduciaries decisions through an abuse of discretion framework and that this was in error, although, as we will see, the consequences only matter for one claim.

Excessive Recordkeeping Fees

The court affirmed the trial court’s decision that the 401(k) plans sponsored by ABB paid excessive recordkeeping fees and that this was a breach of ERISA’s fiduciary duties. The court rejected application of cases like Hecker v. Deere, and instead found that based on the facts and circumstances present and the testimony of plaintiffs’ expert, that the recordkeeping fees were excessive.

The court also rejected the argument by defendants that the plaintiffs were simply attacking bundled services and the use of revenue sharing. Instead, the court found:

The district court did not condemn bundling services or revenue sharing, which are common and “acceptable” investment industry practices that frequently inure to the benefit of ERISA plans. Rather, the district court found the ABB fiduciaries breached their duties to the Plan by failing diligently to investigate Fidelity and monitor Plan recordkeeping costs based on the ABB fiduciaries’ specific failings in this case. The district court found, as a matter of fact, that the ABB fiduciaries failed to (1) calculate the amount the Plan was paying Fidelity for recordkeeping through
revenue sharing, (2) determine whether Fidelity’s pricing was competitive, (3) adequately leverage the Plan’s size to reduce fees, and (4) “make a good faith effort to prevent the subsidization of administration costs of ABB corporate services” with Plan assets, even after ABB’s own outside consultant notified ABB the Plan was overpaying for recordkeeping and might be subsidizing ABB’s other corporate services.

Finally, the 8th Circuit found that despite the district court’s failure to use an abuse of discretion standard, this was harmless error as the facts were so overwhelming in favor of finding a breach. As such, this claim was affirmed.

Mapping of Wellington Fund to Fidelity Freedom Funds

First, the court rejected defendants statute of limitations argument, finding that:

The last fiduciary acts constituting the alleged breach—amending the trust agreements, removing the Wellington Fund as an investment option, selecting the Freedom Funds, and mapping Plan assets to the Freedom Funds—all took place
during or after March 2001, bringing them within the six-year statute of limitation. The district court correctly determined the participants’ mapping claim was timely.

Second, the 8th Circuit found that the district should have used an abuse of discretion standard to review the breach claim, as well as was too influenced by hindsight facts, such as the eventual performance of the Wellington Funds as compared to the performance of the Fidelity Freedom Funds. As such, the court vacated the district court’s decision and remanded back for it to again decide the issue using a more deferential standard.

Third, because the court remanded, they never then addressed the share class issue that the district court addressed similar to the claims in Tibble, affirmed by the 9th Circuit.


In a victory for the Fidelity defendants, the 8th Circuit, citing principles of property law advocated by Fidelity, found that the plaintiffs failed to show that the forms of float at issue were in fact plan assets. Thus, the court found that Fidelity could not have breached any fiduciary duties, as none are required when not dealing with plan assets, as alleged. Thus, this part of the district court’s opinion is reversed and final, as far as the 8th Circuit is concerned (barring any further appeals as discussed below).

However, Judge Bye of the 8th Circuit filed a dissenting opinion, arguing that he was persuaded by the ERISA regulations and DOL agency authority that float was in fact a plan asset, and that he would have found that Fidelity breached its duties.

Our Thoughts

This quick summary of the opinion is our promise to get you these decisions promptly. We will be writing more in the near future as the opinion is digested further.

As to what happens next, I cam easily imagine that all parties (except Fidelity who is now off the hook entirely) will want to file a petition to have the entire 8th Circuit “en banc” hear the case. We should know quickly enough whether this will happen and I wouldn’t be surprised to see it granted to have this decision looked at again. Beyond that, I can assure you that this case will be petition to the Supreme Court, whether or not the 8th Circuit decides to hear it en banc.


Judge Denies Request for Immediate Appeal in Church Plan Case

by Thomas E. Clark, Jr. JD, LLM – March 18, 2014

The judge in Rollins v. Dignity Health has denied the hospital’s request to immediately appeal to the 9th Circuit Court of Appeals the issue of whether the pension plan qualifies for the church plan exemption to ERISA. See our earlier post discussing the court’s decision denying the motion to dismiss. In a 5 page opinion, the court agreed with defendants that the issue will ultimately be dispositive, but not to the point that it meets the 9th Circuit’s standard for an immediate appeal, or what is called an interlocutory appeal.

So what does this mean? It should mean that the case now moves forward with discovery (i.e. exchange of documents, depositions, etc…) barring any other procedural moves by the defendants. And defendants will get their opportunity to appeal after the case has run its normal course (i.e. discovery, summary judgments motions and/or trial).

Overall, we now have 2 cases in the discovery phase and three motions to dismiss still outstanding. When those decisions happen, we will report on them here.

Plan Sponsor Sued over $6 million Paid to Broker

by Thomas E. Clark, Jr. JD, LLM – March 13, 2014

On March 12, 2014, a class action ERISA lawsuit, Kruger v. Novant Health, Inc., was filed in the Middle District of North Carolina by a group of current and former participants in two 401(k) plans sponsored by Novant Health, Inc., a major hospital system in the southeast. The plaintiffs allege that the plans’ fiduciaries violated ERISA by (1) allowing excessive fees to be paid to the plans’ broker, D.L. Davis & Company, Inc., (2) allowing excessive fees to be paid to the plans’ recordkeeper Great West, and (3) including more expensive share classes for all of the plans’ mutual funds. In 2012, the plans’ combined assets totaled $1.42 billion with about 25,000 participants.

Excessive Fees Paid to Broker

The plaintiffs allege that the broker, headed by principal Derrick L. Davis, received excessive fees for the allegedly minimal services provided to the plans. According to the complaint, in 2009 Davis received $827,885 in commissions. By 2012, according to the plans’ 5500s, Davis was receiving nearly $6 million in brokerage commissions (although the 5500s were amended just a few weeks ago to change this amount to about $3.7 million). Over this time period, the plans’ assets increased from $600 million to over $1.42 billion.

Providing possibly damning factual support to their claims, the plaintiffs allege that Davis:

  • receives payments from other Novant Health qualified plans including Novant’s employees’ vision, accidental, life, long term disability, temporary disability, and long-term care plans;
  • receives compensation from the Novant employees’ defined benefit plan known as the Pension Restoration Plan of Novant Health, Inc. (“Novant Restoration Plan”);

  • is a member of the Board of Directors of Novant Health’s Forsyth Medical Center;
  • has an extensive business and land development relationship with Novant Health, including companies owned, controlled, or substantially invested in by Mr. Davis which have entered into land development projects and office building leasing arrangements in the greater-Winston-Salem area with Novant Health; and
  • provided Novant Health a gift in excess of $5 million by a Davis-owned development company, East Coast Capital, just as the company announced the plans of a large business development known as the Southeast Gateway, which included Novant Health occupying 40,000 square feet of this office development for a call center.

Excessive Fees Paid to Great West

The plaintiffs allege that the plans’ recordkeeper, Great West, was paid excessive fees in violation of ERISA when they were paid between $98 and $150 per participant on average, when a prudent per participant fee would have been just $35. The plaintiffs further allege that over the 2009 to 2012 time period, as Great West’s compensation increased, from $195,899 to $2,277,606 (later amended to $2,255,411) as reported in the 5500s, the services they performed did not increase in comparison.

More Expensive Share Classes

The plaintiffs allege that every single mutual fund in the two plans, which total about 20, have available share classes that pay lower revenue sharing. According to the list of the funds that can be found on page 12 and 13 of the Complaint, the plans were invested in share classes that were over 100% more expensive than the cheapest share class available. Here is the chart as alleged by the plaintiffs:

Kruger Chart 1

Kruger Chart 2

Additionally, the plaintiffs made allegations that these funds were imprudent as compared to a lineup of Vanguard funds, which is in line with previous excessive fee complaints.

Our Thoughts

This is the first excessive fee complaint we’ve seen filed against a non-financial services plan sponsor in a while (think the cases filed last year against Fidelity and Mass Mutual). The allegations regarding the broker are by far the most serious, although we were surprised to see those claims only brought under ERISA 404 rather than ERISA 406 (a) or (b).

The $6 million alleged paid in 2012 to the broker, which we were able to see as well looking at the plans’ 5500s, amounts to about 40 basis points on $1.42 billion. If it ends up being that this was a case of the runaway train that can happen when providers are paid with uncapped revenue sharing, we think this complaint should be a wake up call to plan sponsors everywhere with similar setups.