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401(k) Fee Litigation Update – What Tussey v. ABB Means for Plan Sponsors

At the end of last month, Judge Laughrey handed down her decision in Tussey v. ABB, Inc. (W.D. Mo., No. 2:06-CV-04305). In their simplest recitation, the facts of Tussey v. ABB are that ABB selected Fidelity to provide not only recordkeeping and other administrative services to its 401(k) plans, but also certain investment management services through one of Fidelity’s affiliates. During the time period at issue in this lawsuit, Fidelity also provided services to ABB in other capacities, including recordkeeping services for ABB’s defined benefit plan, non-qualified deferred compensation plan, health benefits, and payroll services (collectively referred to as “corporate services” by the court). Plaintiffs brought claims on behalf of a class of present and former ABB employees who are participants in ABB’s 401(k) plans alleging various breaches of fiduciary duties on account of ABB’s relationship with Fidelity, ABB’s management of the plans and Fidelity’s treatment of “float” income (i.e., earnings resulting from the short-term investment of funds held in accounts used to facilitate benefit plan transactions).

Following a four-week bench trial which concluded in January 2010, Judge Laughrey issued an 81-page decision on March 31st finding that the ABB Defendants (hereinafter “ABB”) and Fidelity Defendants (hereinafter “Fidelity”) each breached certain of their fiduciary duties under ERISA. Specifically, the Court found that the: (1) ABB violated its fiduciary duties by (i) failing to monitor recordkeeping costs, (ii) failing to negotiate rebates from either Fidelity or other investment companies utilized on the plan’s investment platform, (iii) selecting

District Court’s Remand To Plan Administrator Is Not Final And Appealable

April 23, 2012


The Eleventh Circuit Court of Appeals recently ruled that a district court’s remand of a benefits claim to the plan administrator is not appealable to the circuit court. For a copy of the court’s opinion in Young v. Prudential Ins. Co., 2012 WL 538955 (11th Cir. Feb. 21, 2012), click here.

The plaintiff in Young submitted a claim for long-term disability benefits, which was denied by Prudential. After she exhausted her administrative appeals, the plaintiff sued for benefits. On cross motions for summary judgment, the district court found in favor of the plaintiff and remanded the case to Prudential for reconsideration of whether the plaintiff was disabled. The district court clerk then entered what purported to be a final judgment and closed the case. Prudential initiated an appeal to the Eleventh Circuit, and while that appeal was pending, Prudential (in its capacity as plan administrator) determined that the plaintiff was disabled.

On appeal, the Eleventh Circuit held that it did not have jurisdiction because the district court’s remand was not a “final decision” under 28 U.S.C. § 1291. The remand did not end the case, the Eleventh Circuit noted, because it left unresolved whether the plaintiff was entitled to disability benefits. The district court therefore retains jurisdiction over the matter until a final decision on that issue is made.

This ruling on the limits of appellate jurisdiction over remand orders is in accord with similar decisions from the First, Eighth and

Moench and the Motion to Dismiss: Two Recent Stock Drop Cases Show Courts’ Division

Although the volume of so-called “stock drop” litigation has decreased somewhat in recent years, decisions announced in February and March, 2012, show this is still an issue to follow. The plaintiffs of Pfeil v. State Street Bank and Trust Company (2012 WL 555481 (6th Cir. 2012)) and In Re: BP ERISA Litigation (case number 4:10-md-02185, S.D. Texas (March 30, 2012)) alleged that ERISA fiduciaries to defined contribution plans breached their duties of prudence by continuing to allow participants to invest in company stock during the time periods leading up to the financial decline of the companies sponsoring the plans. The outcomes of each of these cases are opposite to the other due to differing applications of what has come to be known as the Moench presumption.

We last wrote of the Moench position in a February 6, 2012 blog entry. The presumption provides that a plan fiduciary is presumed to have acted prudently in making the determination to offer and continue to offer company stock as an investment. It can be rebutted by showing that the fiduciary abused its discretion in investing in employer securities. Abuse of discretion may be shown by evidence of fraud, conflict of interest, fiduciaries’ knowledge of the impending financial collapse of the company, or that reasonable fiduciaries could not have reasonably believed that continued investment in employer securities was prudent.

In Pfeil, the Sixth Circuit held a plaintiff need not plead enough facts to overcome the presumption in order to survive

IRS Releases Proposed Rules on New Comparative Effectiveness Fee for Health Plans

On April 12, the IRS released proposed regulations regarding the collection of the fee for the Patient-Centered Outcomes Research Trust Fund (the “Fund”) under the Patient Protection and Affordable Care Act (“PPACA”). The Fund will be used to pay for the Patient-Centered Outcomes Research Institute which has the goal of helping health care providers and consumers make informed health decision by synthesizing research comparing the outcome effectiveness of various treatments.

Who Pays for This

Here’s the kicker: insurers and self-insured health plans get to pay for this, along with multiemployer plans, state and local governmental plans, stand-alone VEBAs and other health plans. We focus primarily on private employer plans, but many of the rules apply similarly to other types of plans.

How Much

Initially, the fee is $1 per covered life. It will first apply for plan or policy years ending between October 1, 2012 and October 1, 2013, which means it is coming soon. After October 1, 2013, it increases to $2 per covered life until October 1, 2014. After that, it is indexed based on projected increases in per capita medical expenditures. It is set to expire on October 1, 2019. The tax return to pay the fee is generally due by the end of July following the end of the applicable plan or policy year.

Overview and “Gotchas”

Generally, the proposed regulations provide that the fees apply to policies or plans that provide medical coverage. Insurers pay the fee on behalf of insured plans, although

Multiemployer Withdrawal Liability “Insurance”

Multiemployer Withdrawal Liability “Insurance”

April 11, 2012

Authored by: benefitsbclp

In a recent decision, the Sixth Circuit Court of Appeals upheld an indemnification of multiemployer plan withdrawal liability in an collective bargaining agreement.

In the case, the employer and labor union had bargained that the union would indemnify the employer for any withdrawal liability from the multiemployer plan. The union, however, subsequently disclaimed its representation of the employees. As a result of that disclaimer, the union was no longer the exclusive bargaining representative of the affected employees and the collective bargaining agreement terminated. As a result, the employer effected a withdrawal from the multiemployer pension to which it had been obligated to contribute and incurred a substantial withdrawal liability.

It so happened that the pension fund in question was the Central States Southeast and Southwest Areas Pension Fund, which is known to have had funding problems for some time. When the pension fund assessed withdrawal liability on the employer, the employer sought indemnification from the union. Upon a challenge on the enforceability of that indemnification provision, the court upheld the provision reasoning that it was analogous to purchasing fiduciary liability insurance, which is expressly permitted under ERISA Section 410.

While this case may be unique on its facts, it may prove helpful to contributing employers to multiemployer pension plans who wish to have the labor union they are negotiating with share some or all of the pain of a withdrawal liability from a multiemployer plan. The holding could also potentially be used to support passing along surcharges or

Jumpstart Our Business Startups Act (JOBS ACT) Contains Executive Compensation Provisions

Update (2:45 PM): As expected, President Obama has signed the JOBS Act into law.

The JOBS Act is expected to be signed by President Obama today. According to the Act, it is intended:

To increase American job creation and economic growth by improving access to the public capital markets for emerging growth companies.

The Act includes provisions relating to crowdfunding, access to capital markets, exemptions to encourage small company capital formation, increased private company shareholder threshold for registration, and reduced public company compliance and disclosure burdens for “emerging growth companies.”

In addition, Title I of the Act “ Reopening American Capital Markets to Emerging Growth Companies,” includes changes to executive compensation disclosure requirements for emerging growth companies.

Emerging Growth Company. An emerging growth company means a company with total annual gross revenues of less than $1 billion (indexed for inflation). Only companies with an IPO after December 8, 2011 can qualify as an emerging growth company. The company loses status as an emerging growth company upon the earliest of:

  • the last day of its fiscal year in which its annual gross revenues are $1 billion or more;
  • the last day of its fiscal year five years after its IPO;
  • the last day of its fiscal year in which it has, during the previous 3-year period, issued more than $1 billion in non-convertible debt; or
  • the date it is deemed to be a “large accelerated filer.”

Executive Compensation. An emerging growth company is exempt from

Five Common 409A Design Errors: #5 Payment Periods Longer than 90 Days

This post is the fifth and final post in our series on five common Code Section 409A design errors and corrections. Go here, here, here, and here to see the first four posts in that series.

Code Section 409A abhors discretion. One concern with discretion is that it could lead to the type of opportunistic employee action or employer/employee collusion that hurt creditors and employees during the Enron and WorldCom scandals.

Another concern is that discretion could be used opportunistically to affect the taxation of deferred compensation. Consider an employment agreement with a lump-sum payment due at any time within thirteen months following a change in control, as determined in the employer’s discretion. This provision would permit the employer to pick the calendar year of the payment. Because non-qualified payments are generally taxable to the recipient when paid, this type of provision would allow a company to essentially pick the year in which the employee is taxed on the payment. In this situation, the IRS would be concerned that the plan participant (who often has great influence with the company) would collude with the company so that the resulting payment was of most tax benefit to the participant.

Code Section 409A addresses this problem by restricting the timing of a deferred compensation payments following a triggering event to a single taxable year, a period that begins and ends in the same taxable year, or a period of up to 90

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