Category Archives: ERISA Litigation Index

Additional Thoughts on the Latest Tussey v. ABB Decision: Fiduciary Lessons Aplenty

As we covered in our last post, the district court’s latest decision in Tussey v. ABB found ABB breached their fiduciary duties but imposed no monetary damages on a procedural technicality. The moral victory for the plaintiffs, however, can still prove to be instructive for other fiduciaries responsible for the selection and monitoring of plan investments. Based on this case, past case law, as well as Department of Labor publications including the most recently issued Field Assistance Bulletin 2015-02, there are six basic obligations a fiduciary must consider when selecting and monitoring investments including:

  1. Engage in an objective, thorough and analytical search,
  2. Avoid self-dealing, conflicts of interest, or other improper influence,
  3. Consider the risk associated with the investment versus alternatives,
  4. Consider ALL costs in relationship to services provided,
  5. Ensure the investment is diversified to minimize the risk of large losses, and
  6. Consult with experts when that expertise is lacking.

Not adhering to this six step process, ultimately resulted in a finding of a breach. According to the court, “ABB’s inconsistent explanations for removing the Wellington Fund and mapping its assets to Fidelity Freedom Funds, the fact that ABB took a substantial part of the PRISM Plan’s assets and put them in an investment that was so new that ABB needed to make an exception to the IPS, and Fidelity’s explicit offer to give ABB a better deal if the Wellington assets were mapped into the Fidelity Freedom Funds” were all reasons cited for the court’s conclusion that ABB was conflicted when it chose to replace Wellington with Fidelity Freedom Funds. Had ABB adhered to the six step process, the outcome would likely have been different because documentation showing compliance with ERISA’s fiduciary duties would have been in place to exonerate ABB.

So what is the lesson here for other ERISA fiduciaries? If you are faced with the opportunity to reduce costs by using proprietary investments, consider documenting your reasons to adopt proprietary funds by answering the following questions:

  1. Are we using proprietary funds?
  2. Are we replacing an existing fund with a proprietary fund?
  3. Have we selected proprietary funds based on the standards and criteria established in the IPS?
  4. If an exception is necessary to use a proprietary fund, should we change the IPS standards and criteria permanently?
  5. Are we using a proprietary fund because it is in the best interests of participants or because it reduces the cost to the Plan Sponsor?
  6. How are we accounting for any additional revenue sharing from the use of the proprietary funds?

It is worth noting that case law has not prohibited the use of proprietary funds, the collection of revenue sharing, or the payment of plan expenses from plan assets. However, fiduciaries must understand that the use of proprietary funds creates an opportunity for additional liability issues to arise that must carefully and deliberately be addressed.

On Remand, Tussey v. ABB Defendants Found to Breach ERISA but Win on Procedural Technicality

Yesterday, July 9, 2015, the district court in Tussey v. ABB ruled on the issues remanded from the 8th Circuit’s mixed decision last year. While the court found the ABB defendants breached their ERISA fiduciary duties, the court ultimately held the ABB defendants victorious because the plaintiffs failed to provide damages calculations consistent with the 8th Circuit’s narrow mandate.

The district court began its decision with a summary of its task on remand:

The Eighth Circuit remanded this case for application of the Firestone abuse of discretion standard to the Defendants’ decision to remove the Vanguard Wellington Fund from the PRISM Plan and transfer its assets to the Fidelity Freedom Funds.

As a recap, the 8th Circuit is one of the first circuit courts in the country to hold that ERISA fiduciaries deserve deference with regard to violations of ERISA 404 and/or 406:

Like most circuits to address the issue, we see no compelling reason to limit Firestone deference to benefit claims. “‘Where discretion is conferred upon the trustee with respect to the exercise of a power, its exercise is not subject to control by the court except to prevent an abuse by the trustee of his discretion.’” Firestone, 489 U.S. at 111, 109 S.Ct. 948 (quoting Restatement (Second) of Trusts § 187 (1959) (alterations omitted)). “This deferential standard reflects our general hesitancy to interfere with the administration of a benefits plan.” Layes v. Mead Corp., 132 F.3d 1246, 1250 (8th Cir. 1998). Given the grant of discretion in this case, the district court should have reviewed the Plan administrator’s determinations under the Plan for an abuse of discretion.

The district then reanalyzed the conduct of the ABB fiduciaries. The court held the ABB fiduciaries breached ERISA’s fiduciary duties when they improperly eliminated the Vanguard Wellington Funds from their plans and replaced it with the Fidelity Freedom Fund lineup. The district court found that this move was motivated by the goal of increasing revenue sharing to Fidelity in order to make large profits on the 401(k) plans, which benefited ABB by keeping hard dollar recordkeeping costs low (which ABB was responsible for) and also keeping the corporate plans with Fidelity at below market pricing.

[T]he Court finds it more likely than not that ABB decided to remove the Wellington Fund and map its assets into the Fidelity Freedom Funds to benefit ABB. The Court cannot say this was its sole motivation. Lifestyle funds were coming into vogue at this time and the Wellington Fund had a short period when it did not perform as well as it had previously. However, given the procedural irregularities including the strong performance of the Wellington Fund during the time period specifically identified in the IPS, ABB’s inconsistent explanations for removing the Wellington Fund and mapping its assets to Fidelity Freedom Funds, the fact that ABB took a substantial part of the PRISM Plan’s assets and put them in an investment that was so new that ABB needed to make an exception to the IPS, and Fidelity’s explicit offer to give ABB a better deal if the Wellington assets were mapped into the Fidelity Freedom Funds, the Court is confident that ABB was conflicted when it chose to take the Wellington Fund assets and put them into the Fidelity Freedom Funds. The Court finds that there are too many coincidences to make the beneficial outcome for ABB serendipitous, particularly considering the powerful draw of self-interest when transactions are occurring out of sight and are unlikely to ever be discovered.

The district court then discussed the Firestone abuse of discretion standard:

Given all these factors, the Court finds that ABB abused its discretion when it removed the Wellington Fund and mapped its assets into the Fidelity Freedom Funds. It is more likely than not that but for its conflict of interest, ABB would not have made the same decisions.

The district court then discussed the narrow interpretation of how damages should be calculated as declared by the 8th Circuit, which stated:

On remand, the district court should reevaluate its method of calculating the damage award, if any, for the participants’ investment selection and mapping claims. See Peabody v. Davis, 636 F.3d 368, 373 (7th Cir. 2011) (clarifying in an ERISA case that “[t]he method of calculating damages is reviewed de novo; the calculations pursuant to the method are reviewed for clear error”). First, the district court awarded the amount that participants who had invested in the Wellington Fund presumably would have had if (1) ABB had not replaced the Wellington Fund with the Freedom Funds, and (2) the participants remained invested in the Wellington Fund for the entire period at issue. In light of the IPS requirement to add a managed allocation fund, it seems the participants’ mapping damages, if any, would be more accurately measured by comparing the difference between the performance of the Freedom Funds and the minimum return of the subset of managed allocation funds the ABB fiduciaries could have chosen without breaching their fiduciary obligations.

Ultimately, the district court found that the plaintiffs failed to present the damages calculations as required by the 8th Circuit:

Plaintiffs argue that this method for calculating damages is wrong, citing precedent that suggests that the proper measure of damages would be the prudent alternative that provides the largest damages unless the breaching fiduciary sustains their burden of proof to establish that a lower yielding award is justified. See Dardaganis v. Grace Capital Inc., 889 F.2d 1237, 1244 (2d Cir. 1989) (“the District Court should presume that, but for the breach, the funds would have been invested in the most profitable of the alternative and the errant fiduciary bears the burden of proving that the fund would have earned less than this amount.”); see also Donovan v. Bierwirth, 754 F.2d 1049, 1056 (2d Cir. 1985) (“Where several alternative investment strategies were equally plausible, the court should presume that the funds would have been used in the most profitable of these.”); see Roth v. Sawyer-Cleator Lumber Co., 61 F.3d 599, 602 (8th Cir. 1995) (citing Bierwirth with approval). But even if the Court assumes that the performance of the alternative target fund that had the highest rate of return would be the proper measure of damages, Plaintiffs have presented no evidence of what that figure would be. Given that the Eighth Circuit has suggested a measure of damages, the Court finds that measure persuasive and Plaintiffs have failed to present evidence of the only measure of damages that the Eighth Circuit has tacitly approved. Therefore, Plaintiffs have failed to satisfy their burden of proof on the issue of damages.

Our Thoughts

Without a doubt, the outcome of this decision has been driven by the unique procedural aspects of the case, rather than substantive ones. For ERISA fiduciaries that might take comfort, don’t. The plaintiffs bar will adapt and the proper damages calculations as required by the court will be presented in all cases in the future. But even these plaintiffs may still get another bite at the apple, as they have every right to appeal the case again to the 8th Circuit, which must hear it, and even the district court stated:

If the Court has misread the Eighth Circuit, its decision is subject to de novo review and can be corrected on appeal.

ERISA fiduciaries should instead carefully study the court’s description of what it held were breakdowns in the fiduciaries’ process in analyzing and selecting investments, as well as handling their own conflicts of interests and fees paid to providers. There are very clear lessons to be learned.



Supreme Court Declines to Hear “Would Have” vs. “Could Have” ERISA Case

The United States Supreme Court has been busy lately as today, Monday June 29, 2015, marks the end of the 2014-2015 term. Although much has been written about the multiple high profile cases decided in the last week, the Court also published an extensive list today of cases they have agreed to hear next term and those they will not hear. On the NO list was an important ERISA fiduciary breach appeal from the 4th Circuit Court of Appeals called Tatum v. RJR Pension Committee. For those interested in reading the extensive briefs, the website SCOTUSblog is an excellent resource.

In a nutshell, this case was about what to do when a fiduciary has breached their duty of prudence by failing to put in place a prudent process to evaluate an investment decision. Can the defendant avoid liability by arguing that the result would be the same even if they had a prudent process in place (i.e. the ultimate decision was still substantively prudent)?

Here, it was the decision of whether to keep or eliminate Nabisco stock in the RJR 401k plan after the company split into two. The plaintiffs alleged that the defendants met for just about an hour and only considered their own liability in deciding to eliminate the stock. Ultimately, the stock price bounced back 200% and the participants in the plan missed out on these gains.

The 4th Circuit concluded that the defendants failed to have a prudent process because they failed to consider the best interests of the participants. The question then becomes, once you’ve shown a failure of procedural prudence, what can the fiduciary prove to show they still made the right substantive choice?

The defendants wanted a standard that would have allowed them to put on evidence that a prudent fiduciary COULD have made the same decision. The plaintiffs, and ultimately the 4th Circuit, supported a standard where the defendant must show that a prudent fiduciary WOULD have made the same decision. Hence, the Could Have vs. Would Have issue.

As explained simply to me by one of the attorneys representing the plaintiffs, Brendan Maher of Stris & Maher, the Could Have standard is essentially proving that if you surveyed 100 prudent fiduciaries, 1 of them would make the same decision. The Would Have standard would require proving that 51 of 100 would make the same decision. Simply, the Would Have standard gives the defendant no benefit of the doubt.

In declining to hear the case, the Supreme Court probably took into consideration a brief from the Solicitor General and the Department of Labor that argued the 4th Circuit got the decision right and that the Court shouldn’t hear it.

Our Thoughts

From a strict legal perspective, the opinion of the 4th Circuit is only valid for those courts that reside in that circuit. The Supreme Court’s denial to hear it does not make it the law for all other circuits. But the overall lesson is applicable to all fiduciaries.

If you fail to have a prudent process in place to make fiduciary decisions, you will have a very high bar to overcome to show you still made the right decision. Imagine a blind monkey throwing a dart at a wall with every mutual fund in the world on it. It’s possible that the monkey hits the “World’s Best Mutual Fund” assuming one exists. In this hypothetical, it’s easy to argue the monkey shouldn’t be held liable as the plan could not have invested in a better fund. But in reality, there are many “prudent” investments that can be made available in a plan. What if the monkey hit a fund that ranks in the top 20%? The top 40%? The top 60%? The answer becomes harder.

Simply put, fiduciaries should not be “shooting from the [monkey] hip” and trying to make good substantive choices without the time and effort needed to know whether the decision is good or bad. There is no good substitute for a good prudent process. Instead, there are only bad substitutes that involve expensive lawyers and expensive expert witnesses trying to prove you didn’t commit monkey business. Choosing the latter over the former is…bananas.

Plaintiffs Score Victory Before Supreme Court in Tibble v. Edison

Today, May 18, 2015, the Supreme Court unanimously ruled in favor of the plaintiff plan participants in Tibble v. Edison. The decision reversed an earlier 9th Circuit ruling that under ERISA’s six year statute of limitations, a claim involving a plan investment that was initially chosen outside the 6 year window from when a lawsuit is brought could only be viable if there was a change in circumstances that would cause a fiduciary to reexamine the fund’s inclusion in the plan. The Supreme Court rejected this interpretation, finding that under ERISA, there is a continuing duty to monitor and remove imprudent investments. Today’s decision also effectively reversed rulings in the 4th and 11th Circuits that were similar to the 9th Circuits.

The Decision

 As we suggested may happen, the Supreme Court voted 9-0 to reverse the 9th Circuit but did so in a way that did not definitively rule on how exactly a claim must be plead to trigger the continuing duty to monitor and remove.

The decision by Justice Breyer began its analysis by examining the previous 9th Circuit decision:

The Ninth Circuit correctly asked whether the “last action
which constituted a part of the breach or violation” of
respondents’ duty of prudence occurred within the relevant
6-year period. It focused, however, upon the act of
“designating an investment for inclusion” to start the 6-
year period…The Ninth Circuit stated that “[c]haracterizing the mere continued offering of a plan option, without more, as a subsequent breach would render” the statute meaningless and could even expose present fiduciaries to liability for decisions made decades ago…But the Ninth Circuit jumped from this observation to the conclusion that only a significant change in circumstances could engender a new breach of a fiduciary duty, stating that the District Court was “entirely correct” to have entertained the “possibility” that “significant changes” occurring “within the limitations period” might require “‘a full due diligence review of the funds,’” equivalent to the diligence review that respondents conduct when adding new funds to the Plan.

The decision then rejects this approach:

We believe the Ninth Circuit erred by applying a statutory bar to a claim of a “breach or violation” of a fiduciary duty without considering the nature of the fiduciary duty. The Ninth Circuit did not recognize that under trust law a fiduciary is required to conduct a regular review of its investment with the nature and timing of the review contingent on the circumstances.

Different Justices of the Supreme Court showed during oral arguments that they struggled with the question of exactly what this continuing duty to monitor looks like. Rather than resolve the question, they have remanded the case back to the 9th Circuit to decide what the duty to monitor requires and whether the plaintiffs here met that burden to have viable claims. But they did so while also providing important context from trust law. Here are few excerpts:

Under trust law, a trustee has a continuing duty to monitor trust investments and remove imprudent ones. This continuing duty exists separate and apart from the trustee’s duty to exercise prudence in selecting investments at the outset. The Bogert treatise states that “[t]he trustee cannot assume that if investments are legal and proper for retention at the beginning of the trust, or when purchased, they will remain so indefinitely.” A. Hess, G. Bogert, & G. Bogert, Law of Trusts and Trustees §684, pp. 145–146 (3d ed. 2009) (Bogert 3d). Rather, the trustee must “systematic[ally] conside[r] all the investments of the trust at regular intervals” to ensure that they are appropriate. Bogert 3d §684, at 147–148; see also In re Stark’s Estate, 15 N. Y. S. 729, 731 (Surr. Ct. 1891) (stating that atrustee must “exercis[e] a reasonable degree of diligence in looking after the security after the investment had been made”); Johns v. Herbert, 2 App. D. C. 485, 499 (1894) (holding trustee liable for failure to discharge his “duty to watch the investment with reasonable care and diligence”). The Restatement (Third) of Trusts states the following: “[A] trustee’s duties apply not only in making investments but also in monitoring and reviewing investments, which is to be done in a manner that is reasonable and appropriate to the particular investments, courses of action, and strategies involved.” §90, Comment b, p. 295 (2007).

The Uniform Prudent Investor Act confirms that “[m]anaging embraces monitoring” and that a trustee has “continuing responsibility for oversight of the suitability of the investments already made.” §2, Comment, 7B U. L. A. 21 (1995) (internal quotation marks omitted). Scott on Trusts implies as much by stating that, “[w]hen the trust estate includes assets that are inappropriate as trust investments, the trustee is ordinarily under a duty to dispose of them within a reasonable time.” 4 A. Scott, W. Fratcher, & M. Ascher, Scott and Ascher on Trusts §19.3.1, p. 1439 (5th ed. 2007). Bogert says the same. Bogert 3d §685, at 156–157 (explaining that if an investment is determined to be imprudent, the trustee “must dispose of it within a reasonable time”); see, e.g., State Street Trust Co. v. DeKalb, 259 Mass. 578, 583, 157 N. E. 334, 336 (1927) (trustee was required to take action to “protect the rights of the beneficiaries” when the value of trust assets declined).

The decision then summarized its holding as follows:

In short, under trust law, a fiduciary normally has a continuing duty of some kind to monitor investments and remove imprudent ones. A plaintiff may allege that a fiduciary breached the duty of prudence by failing to properly monitor investments and remove imprudent ones. In such a case, so long as the alleged breach of the continuing duty occurred within six years of suit, the claim is timely. The Ninth Circuit erred by applying a 6- year statutory bar based solely on the initial selection of the three funds without considering the contours of the alleged breach of fiduciary duty.

Finally, the Supreme Court made clear that it was not ruling on the scope of the duty to monitor:

We express no view on the scope of respondents’ fiduciary duty in this case. We remand for the Ninth Circuit to consider petitioners’ claims that respondents breached their duties within the relevant 6-year period under §1113, recognizing the importance of analogous trust law.

Our Thoughts

 This is obviously a significant victory for the plaintiffs in this case and plan participant lawsuits generally, as many lawsuits in the last 5 years had been dismissed citing the overly restrictive interpretation of ERISA’s six year statute of limitations.

In plain English, what this decision holds is that if a plaintiff can make a valid claim for a violation of the continuing duty to monitor, there is a effectively now a rolling 6 year window of liability. But of course, now the question is: what exactly is that duty and did the defendants violate it here? The panel of three 9th Circuit judges that previously rules in favor of the defendants will get the first chance to answer those questions. Additionally here for these plaintiffs, the defendants have raised an argument that amounts to a technicality that the plaintiffs failed to raise a duty to monitor claim in the lower courts. The Supreme Court again stated that they had no opinion on the matter and would let the 9th Circuit decide.

So what does this decision mean for the (quite probably) millions of ERISA fiduciaries out there? There is no longer any dispute that a fiduciary must have a process to monitor a plan’s investments. We think it is also fair to say that this duty to monitor extends to all other areas of plan administration and responsibility (e.g. fees paid to providers, quality of providers, whether services are necessary, etc…) However, the duty does depend on the circumstances as the Supreme Court pointed out by citing to ERISA’s statutory language. But we suggest that if a fiduciary does not have a robust monitoring process in place, they do not wait for any further court decisions. Develop a process, document why you think it’s a prudent process, and execute that process.

As we’ve done for the Tibble case since the original decision in the 9th Circuit through the granting of the cert petition, we will continue to update our readers on any further developments.

First Church Plan Case Settles – Overall v. Ascension

On Friday, May 8, 2015, the parties in Overall v. Ascension Health filed a motion seeking approval from the district court to settle the claims brought by the plaintiffs. Of the at least ten “church plan cases” that have been filed challenging the scope of the church plan exemption from ERISA, this case is the first to settle.

Previously, the defendant catholic hospital, Ascension Health, that sponsored the defined benefit plan at issue won in the district court in getting the plaintiffs’ claims dismissed. (there are actually over a dozen plans at issue in the case sponsored by the defendant, but for simplicity’s sake, we will refer to them all as a single plan) The plaintiffs, in short, had claimed that Ascension Health was not itself a church nor associated closely enough with the Roman Catholic Church, to be eligible to sponsor a plan exempt from ERISA. The plaintiffs naturally alleged that the plan’s fiduciaries had failed to meet ERISA’s stringent requirements including allowing the plan to be underfunded by ERISA’s standards by $440 million. After the defendant’s victory in the district court, the plaintiffs appealed to the 6th Circuit and was briefed and waiting for oral arguments to be scheduled and heard. According to the settlement filings, the parties worked with a 6th Circuit mediator over many months and many sessions to settle the claims.

The Settlement

Here is a summary of the terms of the proposed settlement:

  1. The plan will continue to be considered eligible for the church plan exemption and thus exempt from ERISA.
  2. The plaintiffs, in summary, release any and all claims that were or could have been brought with a few exceptions including:
    • “Should the Roman Catholic Church ever disassociate itself from a Plan’s sponsor, as that term is defined in the respective Plan documents, any claim arising under ERISA with respect to
      any event occurring after such action by the Roman Catholic Church”; and
    • “Any claim arising under ERISA with respect to any event occurring after the Internal Revenue Service issues a written ruling that a Plan does not qualify as a Church Plan; the United States Supreme Court holds that Church Plans must be established by a church or a convention or association of churches; or an amendment to ERISA is enacted and becomes effective as a law of the United States specifying that a Church Plan must be established by a church or a convention or association of churches.”
  3. Ascension Health has agreed to contribute $8 million to the plan to be allocated at their discretion.
  4. The plaintiffs’ attorneys will receive up to an additional $2 million in fees and costs determined at the discretion of the district court. This money will not come out of the $8 million above.
  5. Ascension has guaranteed that the plans will pay participants the level of benefits promised through at least June 30, 2022.
  6. Ascension will not terminate the plan unless there is sufficient assets to meet the life annuity and lump sum distribution amounts (as those terms are defined by the relevant Plan), elected by participants in a termination, including any administrative costs.
  7. If the plan is amended, the actuarial value of a participant’s accrued benefit will be no less than it was the day immediately
    prior to the effective date of the amendment.
  8. If there are any mergers, participants will be entitled to the same (or greater) benefits postmerger as they enjoyed before the merger.
  9. The plan documents shall: (a) name a fiduciary; (b) provide a
    procedure for establishing and carrying out the current funding policy and method; (c) describe a procedure for allocation of administration responsibilities; (d) provide a procedure for plan amendments and identifying the persons with authority to make such amendments; (e) specify the basis on which payments are made to and from the Plans; and (f) provide a joint and survivor annuity as currently defined in the plan.
  10. The plan’s summary plan descriptions shall be distributed within four months of the time that the Order approving the settlement becomes Final and nonreviewable. The summary plan descriptions shall: (a) exclude any mention of ERISA or information about ERISA rights; (b) include information about the plan’s Church Plan status, including that the Plans’ benefits are not insured by the Pension Benefit Guaranty Corporation;
    (c) make it clear that the Plans are Church Plans; (d) be in the same form and manner as they are now written; (e) not comply with ERISA § 102; (f) be distributed electronically; however, if a participant sends a written request for an summary plan description, once during any calendar year a summary plan description will be provided in hard copy format at the expense of the participant.
  11. The plan’s annual summaries, pension benefit statements, and/or current benefit values (the content of said communications to be determined solely by Ascension) will be distributed electronically in the format determined by Ascension, or on request, and at the expense of the participant, once during any calendar year paper copies of such documents will be provided.
    • Annual summaries shall include: (a) plan names and EIN; (b) plan years covered by the summary; (c) summary of funding arrangements; (d) summary of Plan’s expenses; (e) information as to the number of participants at year end; (f) summary of the value of net assets at beginning and end of each year; (g) a statement of the Plan’s assets and liabilities; (h) summary information as to the increase and/or decrease in net plan assets annually; (i) summary information as to Plan’s total income; and (j) a statement of assets and liabilities consistent with the Plans’ methodologies, not later than the next October 1 following the end of each plan year.
    • Ascension shall provide pension benefit statements at least every three years, the content, distribution and format to be determined solely by Ascension.
    • Ascension will respond to requests from participants for current benefit values information, as determined solely by Ascension, within thirty (30) days after receiving a written request from a participant. However, Ascension may unilaterally extend its deadlines to respond by an additional thirty (30) days, by providing written notice to the participant.
  12. The plan’s claim review procedures, which shall be included as part of Summary Plan Descriptions, shall state: (a) the identity of the person or entity to whom a claim should be addressed; (b) the time period for filing a claim; (c) the information that must be provided in support of the claim; (d) if a claim is denied, in whole or in part, the person to whom an appeal should be sent; (e) the time period for filing a claim appeal; (f) the information the claimant must provide in support of an appeal; and (g) any statute of limitation period for filing a benefits related claim.

Our Thoughts

Boiled down, this settlement appears to be a significant victory for Ascension Health. The plaintiffs have agreed that they will no longer claim that the plan is subject to ERISA unless there is a major change in the law from either the Supreme Court, Congress, or the IRS. In exchange, Ascension health has agreed to contribute $8 million to the plan, although we have no idea how much, if anything, they were already planning on contributing this year or how that amount compares to previous years.

The settlement filings stress that the plan participants will receive “ERISA like” protections as described above, e.g. guaranteed benefits through 2022 and hefty disclosures. However, without fully analyzing the plan’s financial statements, the plan may already have had enough finding through at least 2022, so it is not clear from the settlement filings how much of a benefit this actually provides.

Notably missing from the settlement is, what we believe was the point of the lawsuits in the first place, any funding standard that closely resembles that found in ERISA. The true underlying issue in these cases is that when a defined benefit plan is not subject to ERISA, there is not an alternate state law scheme that springs up. Instead, there is often nothing at all, as most states have not enacted any pension funding standards for non-government entities (and often not even for government entities, as can be seen in many many news stories across the country of under-funded government pensions).

So how does this settlement affect the other 10 or so cases that are currently pending, including three others that are already at the circuit court level (3rd, 7th, and 9th Circuits)? Not much. All this means is that if in the end the courts (rather than Congress or the IRS) will make the final decision on what exactly is the scope of the church plan exemption, it will not come from the 6th Circuit. However, any change in the law from the Supreme Court, Congress, or the IRS will have an effect on plans claiming the church plan exemption in the 6th Circuit, including the plan at issue in this case because the settlement included such a carve out, as described above.

It also remains to be seen whether this settlement will cause any other settlements before we hear from the 3rd, 7th, or 9th Circuits. If we do, we will make sure to cover them here on the blog.