Benefits Bryan Cave

Benefits BCLP

ERISA Litigation

Main Content

Have You Inadvertently Amended Your Benefit Plans in an Acquisition?

Have You Inadvertently Amended Your Benefit Plans in an Acquisition?

November 29, 2011

Authored by: benefitsbclp

Has your company recently acquired another company or its assets? Did the purchase agreement require continuation of any particular level of benefit for acquired employees or retirees? If so, the Fifth Circuit appears to believe that the purchase agreement may have amended your company’s employee benefit plans to provide those benefits described in the purchase agreement. What does this mean? That acquired employees and retirees can potentially sue your company for benefits described in a contract to which the employees and retirees were neither a party nor a third party beneficiary.

Evans v. Sterling, 2011 WL 4837847 (5th Cir. 2011).

In December of 1996, Sterling Chemicals acquired American Cyanamid’s (“Cytec”) acrylic fibers business in an asset purchase transaction. In connection with the acquisition, Sterling offered employment to certain Cytec employees. The asset purchase agreement included a provision requiring Sterling to provide certain levels of retiree medical coverage for the acquired Cytec employees unless Cytec agreed to changes. Sterling provided these retiree benefits to Cytec employees under its own retiree plans following consummation of the acquisition.

A few years following its acquisition of the Cytec business, Sterling increased retiree medical premiums for the acquired Cytec employees. The acquired Cytec employees sued, and the Fifth Circuit held that Sterling could not increase retiree premiums for the acquired Cytec employees without Cytec’s consent.

The court reasoned that the asset purchase agreement between Sterling and Cytec amended Sterling’s existing retiree medical programs. Following earlier precedent in Halliburton Co. Benefits Committee v. Graves,

Third Circuit Update: 401(k) Plan Includes Reasonable Investment Options, Directed Trustee Not A Fiduciary

The Third Circuit recently issued a decision in Renfro v. Unisys Corporation, affirming dismissal of the claims brought against Unisys defendants in a 401(k) plan “excessive fee case.” The court specifically affirmed dismissal of the breach of fiduciary claims brought by of a putative class of participants in a 401(k) defined contribution plan on account of the fact that the Unisys 401(k) plan’s mix and range of investment options was reasonable. Since the court affirmed dismissal of the complaint, it declined to rule on whether the Unisys defendants were entitled to summary judgment on the ERISA Section 404(c) defense. One clear implication of the decision is that there is nothing wrong with offering “higher priced” retail mutual funds in a 401(k) plan. The Third Circuit also affirmed dismissal of the Fidelity defendants since Fidelity was not a fiduciary with respect to the selection and retention of investment options in Unisys’s 401(k) plan.

The opinion was authored by Judge Scirica and is online available at: http://www.ca3.uscourts.gov/opinarch/102447p.pdf.

Limiting Benefits for Drunk Drivers

September 8, 2011

Categories

Limiting Benefits for Drunk Drivers

September 8, 2011

Authored by: benefitsbclp

Should employers include a “drunk driving” benefit exclusion in their death and disability policies? Two recent court cases illustrate that these provisions may determine whether or not an employee is entitled to benefits for injuries that occur while intoxicated.

In Allen v. Standard Insurance Co., an employee was found to be intoxicated when she drove to work, crossed the centerline into oncoming traffic, hit a truck head-on and suffered severe head injuries. Because the long-term disability policy provided by her employer limited benefits for disabilities related to substance abuse, the district court ruled that the employer properly limited her benefits because her disability was caused by a drunk driving accident.

In Thies v. Life Insurance Co. of North America, an employee was found to be intoxicated when he crashed a jet ski and died. His employer-provided life insurance policy did not include a drunk driving benefit exclusion. The district court ruled the plan administrator acted arbitrarily in denying benefits to the employee’s children on the grounds that he was drunk. The court noted there is no current case law that automatically denies benefits for injury or death resulting from operating a vehicle while intoxicated. The court also rejected the argument that the injury was self-inflicted because the employee voluntarily drank alcohol.

Ninth Circuit Ruling: Insurer “logical defendant” in lawsuit to recover ERISA plan benefits

September 6, 2011

Categories

On June 22, 2011, an en banc panel of the Ninth Circuit Court of Appeals issued its much anticipated decision in Cyr v. Reliance Standard Ins. Co., 642 F.3d 1202 (9th Cir. 2011) (en banc). Considering the issue of whether ERISA section 1132(a)(1)(B) authorizes actions to recover plan benefits against an insurer, the Court overruled prior decisions and held that a claimant may sue an insurer directly for unpaid benefits, even if that insurer is not the plan administrator.

 In that case, Plaintiff Laura A. Cyr (“Cyr”) collected long-term disability benefits based on her compensation. While on long-term disability, Cyr sued her former employer for pay discrimination because of her sex. Cyr and the former employer settled that claim and the former employer retroactively adjusted Cyr’s salary. Cyr then approached the long-term disability insurer, Defendant Reliance Standard Life Insurance Company (“Reliance”) about adjusting her disability payments accordingly. Reliance denied the request and Cyr sued Reliance.

Does an ERISA Plan Exist?

Does an ERISA Plan Exist?

September 5, 2011

Authored by: Travis Kearbey

This mixed question of fact and law has perplexed courts perhaps as much as it has confused benefits managers in corporations across the nation.  However, for employers operating within the jurisdiction of the Eighth Circuit Court of Appeals (AR, IA, MO, MN, NE, ND, and SD) this question has recently become easier to answer with respect to single-employee agreements.  In August, the Eighth Circuit parted with federal courts in the Fourth, Seventh, and Eleventh Circuits by holding in Dakota, Minnesota & Eastern Railroad Corp. v. Schieffer that a contract governing severance benefits for a single employee does not constitute an ERISA plan.  

Seventh Circuit Reverses Kraft SJ in 401(k) Fee Case

Seventh Circuit Reverses Kraft SJ in 401(k) Fee Case

September 1, 2011

Authored by: benefitsbclp

Earlier this year, a split Seventh Circuit panel reversed, in part, summary judgment previously granted in favor of Kraft Foods Global, Inc. (“Kraft”) in a class action ERISA breach of fiduciary duty case involving “excessive fees” claims in connection with Kraft’s 401(k) plan. The majority opinion was authored by Judge Adelman, an Eastern District of Wisconsin judge sitting by designation in the Seventh Circuit, and was joined by Judge Rovner.

This entry provides a high-level summary of the issues reversed by the court:

  • The Company Stock Fund Issue:  In 2003, Kraft’s then-parent company, Altria Group, Inc. (formerly Philip Morris), made the decision to move the company stock fund in its 401(k) plan from the unitized stock fund (which generally employs a cash buffer) model to “real time” trading where each participant owned shares of the relevant stock rather than units of a fund that invested in the stock. Kraft plan fiduciaries considered similarly moving away from the unitized stock fund mode; however, at that time, Hewitt (the Kraft plan recordkeeper) did not offer real time trading. The court also noted that the unitized model offered advantages (e.g., faster trades and lower transaction costs by “netting” participant transactions).  Based on the Court’s review of the record, the Kraft plan fiduciaries considered, but never actually made a decision regarding, whether to retain the unitized fund or move to real time trading.  On remand, the Seventh Circuit majority ruled that Kraft must offer evidence that its plan fiduciaries made a decision

COBRA and STD/FMLA

COBRA and STD/FMLA

September 1, 2011

Authored by: benefitsbclp

In Clarcor, Inc. v. Madison Nat’l Life Ins Co. (M.D. Tenn. 2011), the District court for the Middle District of Tennessee upheld a denial of stop-loss coverage by Madison National Life for expenses incurred by an employee who was put on short term disability following FMLA leave.  The employee went on FMLA leave and when that leave expired, she did not return to employment.  Instead, the employer put her on short-term disability. Following the expiration of short-term disability, her employment was terminated and she was offered COBRA.

However, under the eligibility provisions of the self-funded health plan, she was required to be either actively working, on FMLA or on COBRA.  Because she was not in any of those classes, she was ineligible. The employer had a policy providing for continued coverage while employees were on short-term disability, but the policy was not part of the formal plan document.  Therefore, the court said, the policy was not sufficient to establish her eligibility and the stop-loss carrier was correct in denying coverage for her medical expenses.

Seventh Circuit Overturns Dismissal of Collusive Trading Action Brought By AnchorBank

August 24, 2011

Categories

Last Friday, the Seventh Circuit issued an opinion overturning the lower court’s dismissal of a lawsuit brought against Hofer, an employee of AnchorBank, alleging  that, along with two other employees, Hofer engaged in a collusive trading scheme in violation of Sections 9(a) and 10(b) of the Securities Exchange Act of 1934 (“1934 Act”).  The two other employees settled with AnchorBank before the lawsuit was filed.

In its second amended complaint, AnchorBank alleged that Hofer and his two co-conspirators coordinated their purchase and sale of units in the AnchorBank Unitized Fund (“Fund”), which was an investment option in the AnchorBank 401(k) plan that held cash and company stock.  The alleged scheme involved the coordination of the sale of Fund units, triggering a payout from the Fund’s cash reserves to the suspected co-conspirators.  Since the trustee was required to maintain a particular cash-to-stock ratio in the Fund, it was then forced to sell AnchorBank stock on the open market to replenish the Fund’s cash reserves.  This heightened trading activity by the alleged co-conspirators caused the volume of AnchorBank stock on the market to be relatively high as compared to normal trading and, given the large volume of AnchorBank stock being sold at or around the same time, AnchorBank’s stock price declined.

The attorneys of Bryan Cave Leighton Paisner make this site available to you only for the educational purposes of imparting general information and a general understanding of the law. This site does not offer specific legal advice. Your use of this site does not create an attorney-client relationship between you and Bryan Cave LLP or any of its attorneys. Do not use this site as a substitute for specific legal advice from a licensed attorney. Much of the information on this site is based upon preliminary discussions in the absence of definitive advice or policy statements and therefore may change as soon as more definitive advice is available. Please review our full disclaimer.