Year in Review: 2013 in ERISA Litigation

Several U.S. Supreme Court rulings broke new ground for employee benefits in 2013, and decisions in 2014 are also expected to push these issues into new territory. In addition to its landmark ruling recognizing same-sex marriage under federal law, the U.S. Supreme Court also issued two significant opinions under the Employee Retirement Income Security Act in 2013—one involving contractual limitations periods, and the other involving Section 502(a)(3)'s equitable remedies provision. 

In 2014, the high court is scheduled to weigh in on the presumption of prudence that shields fiduciaries of plans that invest in employer stock from liability in stock-drop lawsuits. The court also signaled that it may revisit ERISA's equitable remedies provision when it invited the U.S. Solicitor General to file a brief in a case involving equitable tracing.

In April, a divided Supreme Court handed down the most anticipated ruling on ERISA's equitable remedies provision since CIGNA Corp. v. Amara, 131 S.Ct. 1866, (2011). The court's April 16 decision in U.S. Airways, Inc. v. McCutchen, 133 S.Ct. 1537, (2013) held that the unambiguous terms of an ERISA plan's reimbursement provision can't be overridden by equitable principles such as unjust enrichment.

District courts interpreting the McCutchen ruling have consistently rejected ERISA plan participants' attempts to use principles of equity to defeat reimbursement claims by their plans. The vast majority of these rulings have favored plan fiduciaries over participants.

On June 26, the Supreme Court, in United States v. Windsor , 133 S. Ct. 2675, 2013 BL 169620 (2013), overturned Section 3 of the Defense of Marriage Act, ruling that, for the purposes of federal law, the definition of marriage includes those individuals involved in a same-sex marriage in states where such a union is recognized. Two months later, in August, the Internal Revenue Service issued Revenue Ruling 2013-17, which recognized same-sex married couples for federal tax purposes.  The ruling recognized same-sex marriages for federal tax purposes if they were entered into in a state where such a union was recognized, regardless of the local laws of the state where the couple resides, the place of celebration rule.

In spite of the state of domicile rule applied by the district court in the Cozen O'Connor case, the question of jurisdiction seems to have been settled by the agency guidance applying a state of celebration rule for purposes of recognizing same-sex marriage. But two main issues remain open with regard to the effect of the Windsor decision: its retroactive effect and its application to self-funded welfare plans.

In December, the Supreme Court agreed to weigh in on the presumption of prudence that some federal courts have used to shield fiduciaries of employer stock plans from liability in stock-drop lawsuits by participants challenging declining share value (Fifth Third Bancorp v. Dudenhoeffer , U.S., No. 12-751, cert. granted 12/13/13). The presumption is sometimes referred to as the Moench presumption, after a 1995 decision of the U.S. Court of Appeals for the Third Circuit (Moench v. Robertson, 62 F.3d 553, (3d Cir. 1995). Under Moench, stock-drop plaintiffs must point to a plan sponsor's impending collapse or other dire circumstances to show that a reasonable plan fiduciary would have divested the plan of employer stock. The Moench presumption is frequently cited as grounds for dismissal of employer stock-drop cases.

Ronald E. Richman, a partner in Schulte Roth & Zabel LLP's New York office and co-head of its employment and employee benefits group, told Bloomberg BNA Dec. 19 that the Supreme Court's decision to review this presumption had big implications for the future of stock-drop litigation. According to Richman, one of the biggest issues the Supreme Court could decide is whether the presumption is a pleading requirement applicable at the motion to dismiss stage or an evidentiary requirement applicable at the summary judgment stage.

Equitable tracing under ERISA had a big year in 2013, with the U.S. Court of Appeals for the Second Circuit rejecting the idea that Section 502(a)(3)'s equitable remedies provision included a strict tracing requirement (Thurber v. Aetna Life Ins. Co., 712 F.3d 654, (2d Cir. 2013)). Courts that have imposed a tracing requirement have generally prohibited ERISA plan fiduciaries from asserting claims for reimbursement under ERISA Section 502(a)(3) against beneficiaries who are no longer in possession of the sought-after funds. These courts have concluded that a beneficiary's dissipation of the funds in question caused the plan's claim to be a claim for monetary, legal relief, as opposed to the equitable relief allowed by Section 502(a)(3). In the Thurber ruling, the Second Circuit rejected the idea that Section 502(a)(3) imposed a tracing requirement.

Although the high court has yet to decide whether it will grant review of Thurber, the justices signaled that they may be inclined to do so. In October, they invited the U.S. Solicitor General to file a brief expressing the government's view on the case, a move that is often interpreted as the justices expressing interest in a particular case.

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To contact the reporters on this story: Jacklyn Wille previous hitinnext hit Washington at and Matthew Loughran previous hitinnext hit Washington at

Excerpted from a story that ran in Pension & Benefits Daily (1/17/2014).