Various courts, including the U.S. Supreme Court, have decided cases involving the Employee Retirement Income Security Act (ERISA) so far this year. These decisions include the Supreme Court's unanimous resurrection of an alleged retirement fund mismanagement case against Cornell University and the revival of a yacht company's claim against its health benefits administrators for excessive fees by the Sixth Circuit. The Second Circuit reopened a proposed class action against IBM regarding the use of outdated mortality tables to calculate pension annuities, and the Sixth Circuit affirmed the dismissal of an alleged 401(k) mismanagement claim against an auto parts manufacturer. Finally, a Texas federal district court held American Airlines liable for emphasizing investments in funds that considered environmental, social, and governance (ESG) factors, with the assistance of BlackRock.
Supreme Court Resurrects Class Action Retirement Fund Claim Against Cornell
In Casey Cunningham et al. v. Cornell University et al., the U.S. Supreme Court unanimously reopened a proposed class action suit against the university for allegedly mismanaging its retirement fund. More specifically, the plaintiffs claim that Cornell's high-dollar recordkeeping relationships with TIAA and Fidelity resulted in ERISA-prohibited transactions. In the high Court's ruling, the justices uniformly rejected Cornell's argument to raise the pleading standard for ERISA prohibited transaction claims.
The Supreme Court's ruling in Cornell lowers the bar for pleading prohibited transaction claims under ERISA, which may result in a surge of similar class actions. Nonetheless, management-side attorneys should also be aware of the various suggestions in the Court's opinion regarding deterring prohibited transaction claims through changes to pleading practice and district court-level actions.
Sixth Circuit Revives Yacht Company's Excessive Fees Claim
In the context of rising litigation over excessive healthcare fees, a panel of the Sixth Circuit revived such a claim in Tiara Yachts Inc. v. Blue Cross Blue Shield of Michigan, Case Number 24-1223. Tiara Yachts filed suit against Blue Cross Blue Shield of Michigan (BCBSM), alleging the company had breached its fiduciary duties under ERISA. According to the lawsuit, BCBSM overpaid health claims from out-of-state healthcare providers. The insurance company then recouped the overpayments and characterized them as savings for plan participants.
A lower court dismissed the claim, finding that the billing practices of a self-funded health plan administrator went beyond the scope of ERISA. However, the Sixth Circuit panel found that the yacht company's allegations fell within the reach of ERISA because BCBSM retained control over plan assets, thus implicating fiduciary duties under ERISA.
The Sixth Circuit's ruling serves as a warning to third-party administrators of self-funded employer health plans of their potential fiduciary liability under ERISA. Employers can prevent potential litigation on these issues by investigating the reimbursement practices of their healthcare administrators.
Second Circuit Reopens IBM Pension Annuity Calculation Dispute
A unanimous panel of the Second Circuit reopened a proposed class action against tech company IBM, which a lower court had dismissed on statute of limitations grounds. The workers allege that IBM used outdated mortality tables to decrease retirees' pension annuity payments. The appellate panel concluded that the lower court should have clarified certain pension projection documents before dismissing the case.
The decision in Knight v. International Business Machines Corporation, Case No. 24-1281, is significant because similar suits remain pending in other circuits. Those suits include two Sixth Circuit appeals involving retirees of FedEx and Kellogg. Benefits attorneys should assume that similar lawsuits will not stop until plans take steps to update their mortality tables.
Sixth Circuit Affirms Dismissal of 401(k) Mismanagement Claim Against Auto Parts Maker
Another Sixth Circuit panel upheld the dismissal of an excessive 401(k) recordkeeping fee challenge by employees of an auto parts manufacturer. After a Michigan federal court dismissed a proposed class action, the Sixth Circuit affirmed the lower court's ruling in Martha England et al. v. Denso Int'l America Inc. et al., Case Number 24-1360. The appellate court agreed with the lower court that the workers' mere claim that they overpaid recordkeeping fees was insufficient to support a larger retirement plan mismanagement class action lawsuit.
Benefits attorneys should note that in its decision, the Sixth Circuit panel explicitly disagreed with a 2023 Seventh Circuit panel decision to reinstate a retirement plan fee and mismanagement claim against Northwestern University. That panel revived the suit upon remand from the U.S. Supreme Court.
American Airlines Liable for ESG 401(k) Investment Choices
A Texas federal district court judge ruled in Spence v. American Airlines Inc. et al., Case Number 4:23-cv-00552, that American Airlines is legally responsible for emphasizing ESG factors in its investments based on the company's actions and those of its investment manager, BlackRock.
American Airlines pilot Bryan Spence filed a proposed class action lawsuit against the company in June 2023. The judge's ruling, which followed a four-day bench trial, found that the company breached its fiduciary duty of loyalty under ERISA by failing to monitor BlackRock's ESG investment strategy fully.
The ruling highlights the current risks associated with ESG investment selections, particularly as the Trump administration continues to diverge from the previous administration's views on the issue. The Trump administration reportedly intends to issue a new rule on how ERISA plan managers can consider ESG factors.
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