Plan Fee Litigation Burned Hot in 2013, But Some Decisions Baffling, Speakers Say


Plan fee litigation had a big year in 2013, with divisive appellate court decisions affecting standards of judicial review, statutes of limitations and functional fiduciary status that may open the door for increased and novel litigation, employee benefits attorneys said during a conference panel presentation.         

In addition to parsing the welfare plan fee litigation pending in the U.S. Court of Appeals for the Sixth Circuit, panelists on Feb. 8 discussed recent decisions involving retirement plan fees, including one affording fiduciaries more deferential standards of review and one finding investment challenges to be time-barred.         

The attorneys spoke about cases affecting fiduciaries during a session of the 2014 Midwinter Meeting of the American Bar Association Section of Labor and Employment Law Employee Benefits Committee, which was held in New Orleans.                  

One case that sparked considerable discussion was the U.S. Court of Appeals for the Ninth Circuit's recent decisions in Tibble v. Edison Int'l, 711 F.3d 1061, 56 EBC 1245 (9th Cir. 2013).         

In the view of Gregory Y. Porter, a plaintiff-side attorney with Bailey & Glasser LLP in Washington, one noteworthy aspect of the Tibble rulings was the court's pronouncement that deferential judicial review applied to claims that plan fiduciaries failed to follow plan terms.         

Porter said that this holding wasn't rooted in the statutory text of the Employee Retirement Income Security Act.         

“I think these judges must have some secret version of ERISA that I've never seen, because they keep on finding things that aren't in the statute,” Porter said.         

Further, Porter said that this holding “raises a lot of important implications,” particularly with respect to employer stock. Porter questioned whether Tibble would allow plan fiduciaries to “hardwire” investment choices into the plan document in order to receive deferential judicial review on claims related to those investments.         

“I see a lot of mischief arising from this,” Porter said.         

Marc Machiz, director of the Philadelphia office for the Department of Labor's Employee Benefits Security Administration, said that this standard articulated in Tibble looks “an awful lot like” the business judgment rule, a creation of corporate law that shields corporate officers from liability for actions taken pursuant to their business judgment.         

Porter also called it “troubling” that Tibble was decided by the Ninth Circuit as opposed to one of the “more conservative circuits,” because he said those circuits may be inclined to follow Tibble‘s lead.           

Finally, Porter said that Tibble may open the door for litigation on whether other fiduciary breaches—such as the duty of loyalty—should be reviewed more deferentially.         

“I don't see how a breach of the duty of loyalty could ever be reviewed under a deferential standard of review, but I expect to see the argument,” Porter said.         

Statute of Limitations          

The panelists also discussed the U.S. Court of Appeals for the Fourth Circuit's recent decision in David v. Alphin, 703 F.3d 327, 54 EBC 2437 (4th Cir. 2013) (11 PBD, 1/16/13; 40 BPR 189, 1/22/13).         

The Alphin court rejected certain claims challenging a Bank of America Corp. plan's investment options as time-barred on the grounds that the claim actually challenged fund selection—rather than fund retention—and that the fund selection decisions were made outside of the applicable six-year limitations period.         

Machiz said that the “absurdity of this decision” was that it accepted the premise that “as a fiduciary, you don't have any obligation to, on an ongoing basis, review what you're doing.”         

In Machiz's view, the Alphin case contained the “much broader holding that fiduciaries have no duty to continually review and reconsider the plan's investment lineup.”         

On that point, Machiz said that one of the ideas behind the new fee disclosure rules was that fiduciaries should continually review plan investment options and related fees to determine whether a particular fund continues to be a reasonable investment option.         

“If that isn't a fiduciary duty, then I genuinely don't understand ERISA,” Machiz said.         

The statute of limitations issue was hotly debated by the panelists, with Ian H. Morrison, a partner with Seyfarth Shaw LLP in Chicago, taking a different view.         

“The reality is that Congress put in a statute of limitations that can't be read out of the statute,” Morrison said. “If you're going to allow somebody to sue over conduct that occurred out of the six-year period, you would be reading [that provision] out of the statute,” he said.         

Functional Fiduciary          

Another case that spurred spirited discussion was Leimkuehler v. Am. United Life Ins. Co., 713 F.3d 905, 56 EBC 2407 (7th Cir. 2013), in which the U.S. Court of Appeals for the Seventh Circuit held that an insurance company that provided a package of retirement plan investment options wasn't a functional fiduciary and couldn't be held liable for its revenue-sharing practices under a theory of fiduciary breach.         

Machiz called the Seventh Circuit's ruling “wacky,” saying that “if you had the power to do something and you refrained from doing it,” that could be considered an exercise of fiduciary authority.         

Other panelists and attendees questioned the idea of whether an individual could become a fiduciary by omission.         

Either way, Machiz said, it was “an interesting issue, and I don't think we've heard the last of it.”

Excerpted from a story that ran in Pension & Benefits Daily (2/11/2014).