The courts have been busy in 2014, addressing a variety of issues in the employee benefits field in decisions that impact everyone from union travelers to ESOP fiduciaries. This advisory summarizes a selection of the 2014 decisions, to date, and the key lessons you should take away, including:
- Union travelers entitled to wrongfully withheld reciprocity pension contributions
- TPA engages in prohibited self-dealing by concealing fees
- Church plans should proceed with caution unless established and created directly by a church
- Employers have no cause of action against multiemployer trustees for negligent plan management
- U.S. Supreme Court rejects Moench presumption, adopts plausibility standard
- Include contractual time limit in denial of benefits
- Once-per-year IRA rule to be applied on aggregate basis
- Upcoming litigation
Union travelers entitled to wrongfully withheld reciprocity pension contributions
In a case of first interpretation, the U.S. District Court for the Western District of Washington ruled on Sept. 11, 2014, that a multiemployer union pension plan in critical funding status may not withhold a part of reciprocity contributions due to travelers’ “home funds” in order to fund its own rehabilitation plan. In 2008, the trustees of the IBEW Pacific Coast Pension Fund (the “local plan”) adopted an amendment to allow the local plan to withhold a portion of all reciprocity contributions made on behalf of traveling union employees. Represented by Rich Birmingham, Mr. Richard Lehman, a traveling union employee, brought a suit on his own behalf and on behalf of those similarly situated, against the local plan’s trustees, alleging that the trustees violated the terms of the local plan document and ERISA Section 305 by withholding all or a portion of the reciprocity contributions made on his behalf and eliminating future accruals on such withholdings.
Although the local pension fund contended that the withholding of funds from the contributions made on Mr. Lehman’s behalf was required by Section 305 of ERISA, requiring the trustees to improve the local fund’s funding condition, the court disagreed, finding that the local plan was acting as an agent of Mr. Lehman’s home fund under a reciprocity agreement and had no independent right to the contributions. As a result, the court ordered the local plan trustees to transfer all wrongfully withheld reciprocity pension contributions to Mr. Lehman’s home fund and clarified his future right to such contributions.
Key Lessons: Traveling employees who are signatories to a reciprocity agreement may receive increased pension benefits in their home funds if they perform work in the jurisdiction of a local plan that wrongfully withholds all or a portion of the reciprocity contributions made on behalf of traveling employees. Employers of such traveling union employees may want to make them aware of this right.
TPA engages in prohibited self-dealing by concealing fees
In Hi-Lex Controls, Inc. v. Blue Cross Blue Shield of Michigan, 2014 WL 1910554 (6th Cir. 2014), the court concluded that Blue Cross Blue Shield of Michigan (BCBSM), the third-party administrator (TPA) for the plan, was an ERISA fiduciary and had breached its fiduciary duty by engaging in self-dealing, and affirmed an award of $5 million plus pre-judgment interest. In Hi-Lex, BCBSM had served as the plan TPA from 1991 to 2011, pursuant to a written agreement. Although BCBSM disclosed and received an administrative fee, BCBSM also began adding additional mark-ups to hospital claims in 1993. According to Hi-Lex’s allegations, BCBSM misrepresented these additional fees in contract documents and assured Hi-Lex that no fees were charged other than the administrative fee. Upon learning about the additional fees, Hi-Lex sued, claiming that BSBSM violated ERISA by engaging in self-dealing. The district court agreed, awarding Hi-Lex over $5 million in damages and prejudgment interest of almost $914,241. On appeal, the 6th Circuit agreed on all points, concluding that (1) BCBSM served as a fiduciary because it held or controlled plan assets and exercised authority over covered assets; (2) the complaint was not time-barred because BCBSM’s actions triggered the six-year fraud and concealment statute of limitations; and (3) BCBSM’s use of fees it discretionarily charged for its own account is exactly the sort of self-dealing that ERISA prohibits fiduciaries from engaging in.
Key Lessons: A TPA will be found to have discretionary authority over plan assets, and thus be a plan fiduciary, even if plan assets are not held in trust so long as plan documents, such as the summary plan description, support the position that plan beneficiaries have a reasonable expectation of a beneficial ownership interest in the funds held by the TPA. In...
