mary komornicka, jd, cebs larkin, hoffman, daly & lindgren llp

Mary Komornicka, JD, CEBSLarkin, Hoffman, Daly & Lindgren LLP

Major Supreme Court DecisionsLaRue v DeWolff

MetLife v Glenn

Standard of ReviewQuestion: When the courts are

reviewing the decision by a plan fiduciary, how much weight do they give to that decision ?

None (de novo)Considerable amount (abuse of

discretion)

Prior StandardCourts apply “abuse of discretion” if

the plan document provided the plan administer with “discretionary authority,”

Otherwise de novo.

Firestone

ERISA RightsQuestion: on what basis can a participant

sue?

For his own benefit due § 502(a)(1)

For damages due to benefits denied§ 502(a)(2)

For a breach of fiduciary duty§ 502(a)(3)

Suing for Plan Benefits § 502(a)(1)

A plan participant must exhaust all administrative and appeal remedies available under the terms of the plan document before filing action in federal court.

Firestone

For damages due to benefits denied

Participant cannot sue for compensatory or punitive damages resulting from benefit denial or delay

Russell

“We are reluctant to tamper with an enforcement scheme crafted with such evident care as the one in ERISA.”

For a breach of fiduciary duty § 502(a)(2)

Can sue for losses to the plan arising from breaches of fiduciary duty but not compensatory or punitive damages to an individual.

Russell

For a breach of fiduciary duty§ 502(a)(3) Equitable RemediesConflicting decisions

Restricted traditional “equitable" remedies Mertens and Knudson

Policy and “appropriate” remedies Variety

Justices Scalia and Thomas consistently hold for “traditional” equitable remedies

Justices Breyer, Ginsburg, Stevens and Souter commonly look at policy and “appropriate”

LaRue v DeWolffBackgroundTwice submitted change in

investmentsDidn’t happenLoss of $150,000Sued fiduciaries

LaRue v DeWolffThree Decisions – all saying LaRue can sue

1.Stevens (majority) – Retirement Plans are now DC, need to recognize the new reality.

2.Chief Justice Roberts – This is a benefit claim

3.Thomas and Scalia – A loss to one account is a loss to the plan as a whole

Majority OpinionDefined contribution plans are

different, and a “fiduciary misconduct need not threaten the solvency of the entire plan to reduce benefits below the amount that participants would otherwise receive.”

It is sufficient that the fiduciary breach “impair[ed] the value of plan assets in a participant’s individual account” for it to be deemed a plan injury.

Roberts OpinionThe claim is subject to all the

administrative rules regarding filing for a claim and exhausting any administrative remedies (appeals) prior to filing any federal action.

§ 502(a)(1)

Thomas & Scalia“When a defined contribution plan

sustains losses, those losses are reflected in the balances in the plan accounts of the affected participants, and a recovery of those losses would be allocated to one or more individual accounts”

Merely bookkeeping difference between DB and DC

What’s the Difference?Roberts – Benefits claim

Must follow all internal claims & appeals procedures

Creates record that the court can rely uponSource of funds – plan assetsHow can an active employee file claim for

benefits?

What’s the Difference?Thomas & Scalia – Plan is the sum of

its partsFiduciary breach for the lossFiduciary must make plan wholeWhat if the trade was executed in wrong

account?Differences between DB and DC are more than

just the existence of individual accounts

What’s the Difference?Steven’s (majority) –

Fiduciary breach for the lossFiduciary must make plan wholeRecognizes that the rules set for DB plans may

not work for DC plans

Impact of LaRueIndividual participants can sue

based on fiduciary breach that impacted only one or a few participants

7th Circuit has used LaRue as basis for “stock-drop” cases to continue

May be basis for excessive fee cases

MetLife v GlennLTD ClaimGranted disability benefits “own occ”

basisMetLife encouraged Glenn to file for SSASSA found Glenn total & permanent

disabledMetLife took 80% of back SS benefitsAttorneys took other 20%

MetLife found Glenn not disabled, ended benefits

MetLife v GlennQuestion: Since MetLife was both

plan administrator and payor of benefits, does this conflict of interest change the standard of review?

Conflict of InterestMajority Opinion –

Still apply deferential standard of reviewJudge should take into account the

conflict of interest when determining if fiduciary abused his discretionary powers

Totality of circumstancesWhen there is a structural separation,

then importance of conflict of interest is minimized

Roberts & ScaliaDifferent opinions, and different

results but have similar basisCourts should only consider conflict

of interest when it impacts the motive for the decision

Think the majority’s opinion is muddy

Impact of MetLifeRecognize where there is a conflict

of interestSeparate functionsDocument decision making process

Questions

Discussion