Court Kills Most Claims Against Meriter Plan, Allows Fiduciary Breach Claim to Continue

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By Matthew Loughran  

July 7 — A federal judge in Wisconsin has determined that almost all claims by a group of 11 subclasses representing more than 4,000 participants in the pension plan of Meriter Health Services Inc. are barred by the applicable statute of limitations.

In a July 3 opinion, Judge William M. Conley granted partial summary judgment to Meriter, finding that the majority of claims against the administrator accrued in 2003 at the latest, making the class action untimely as it was filed in 2010, well beyond the six-year statute of limitations.

The court did, however, refuse summary judgment on the claim that the administrator breached its fiduciary duties to act solely in the interest of the plan participants by concealing potential violations of tax code Section 417(e) when calculating lump-sum payments to participants.

That claim will be the subject of a trial before Conley scheduled for July 28.

The court's decision significantly narrows the scope of a class action filed on behalf the participants in the Meriter Health Services Employee Retirement Plan, which had previously been certified as to 11 separate subclasses depending on employment status, receipt of plan benefits and age at retirement.

That class certification had been affirmed by the U.S. Court of Appeals for the Seventh Circuit in December 2012.

The main act that spurred the claims was an attempt by Meriter in 2003 to amend the plan to follow a cash-balance model and to follow the lump-sum calculation requirements of the tax code.

The court divided the claims of the class members into three groups: pre-amendment plan administration claims, claims about the legality of the plan amendment and post-amendment plan administration claims.

Pre-Amendment Claims

The pre-amendment claims in the class action stemmed from the administration of the Meriter pension plan prior to its purported amendment in 2003 to change the method for calculating lump-sum payments.

According to the court, the previous version of the plan required only that a participant requesting a lump-sum payout be provided with an amount equal to eight times his accrued benefits.

However, the court found that in 2001, the plan administrator recognized that this calculation formula ran afoul of Section 417(e), which requires that a lump-sum payout for such a plan equal the greater of either the plan's formula or a formula based on the applicable mortality table and applicable interest rate.

According to the court, in late 2002 and early 2003, Meriter attempted to amend the plan to include the calculation formula from the statute, a formula that could result in higher lump-sum payments for some participants.

The court found that the participants were alerted to the potential difference between their lump-sum payouts and the statutory minimum payouts by 2003 at the latest when “the possibility of underpayments was flagged in publicly accessible forms submitted to the IRS.”

Additionally, the court found that an audit statement that was filed in 2002 with the Department of Labor and Pension Benefit Guaranty Corporation and was publicly available listed the possibility of additional payments to participants who had already received their lump-sum payouts.

Applying Wisconsin's six-year statute of limitations for contract breach, the court found that all claims for benefits based on Meriter's pre-amendment administration of the plan are time-barred as those claims accrued more then six years before the case was filed.

Plan Amendment

The court found that, although Meriter wasn't able to produce a signed copy of the amended plan from 2003, the administrator's later actions as well as documentation of the intent and notice of the amendment ratified the unsigned plan amendment document.

The court confessed that it was hesitant to find ratification in amendment of the pension plan since the Employee Retirement Income Security Act only allows amendment by the terms of the written plan document in the case of a pension plan.

However, the court found that a formal resolution from the board of directors to amend the plan as well as notice provided to participants, the DOL and the Internal Revenue Service of the amendment allowed for a finding that the failure to execute the amended plan documents was a mere oversight that didn't invalidate the amendment.

Again applying state breach-of-contract limitations, the court found that any claims related to the 2003 amendment of the plan were time-barred, as they should have been filed by 2009 whereas the complaint in the instant case was filed in 2010.

Post-Amendment Claims

The court found that anti-cutback claims and “wear-away” claims asserted by the class members were mooted as a result of its decision that the plan was amended in 2003.

The “wear-away” claims asserted that Meriter had begun in 2003 to provide all participants with a cash balance account that hadn't taken into account potentially higher lump-sum payments that would have been available had the administrator properly applied the calculation formulas in the tax code.

The participants also argued that Meriter failed to index the lump-sum payments for early retirees through the normal retirement age as required by the statute.

Finding that these claims, along with the claims that the amendment illegally cut back the accrued benefits in violation of ERISA, stemmed from the class members' assertion that the plan wasn't properly amended in 2003, the court granted summary judgment to Meriter on both counts.

Fiduciary Duty Breach

The court permitted a claim for breach of fiduciary duty to continue against Meriter, finding that a material question of fact existed as to whether the plan administrator knew that its management of the plan violated the tax code.

Refusing to find these claims time-barred, the court pointed to an instance in which Meriter paid at least one plan participant more than his account balance after it had begun to calculate the lump-sum payment pursuant to the tax code.

The court inferred from this action, as well as internal discussions between members of the pension committee, that Meriter had attempted to actively conceal its mistakes in calculating lump-sum payments.

This inference of active concealment led the court to invoke the “fraud or concealment” provision of the statute of limitations for fiduciary breach claims under Section 413 of ERISA and find any claims based on the tax code violations not time-barred.

The class members were represented by Eli Gottesdiener, Matthew C. Norgard, Albert Huang and Steven D. Cohen of Gottesdiener Law Firm PLLC in Brooklyn, N.Y.

Meriter was represented by Charles Clark Jackson, David A. Gomez, Jeffrey J. Kmoch, Jeffrey A. Sturgeon, Jeremy Blumenfeld and Matthew A. Russell of Morgan Lewis & Bockius LLP in Philadelphia and Chicago, and Todd G. Smith of Godfrey & Kahn SC in Madison, Wis.

To contact the reporter on this story: Matthew Loughran in Washington at

To contact the editor responsible for this story: Sue Doyle at

Text of the opinion is at