Pension Funds, The Financial Crisis, and Ponzi Schemes: Whats Next for Fiduciaries? Singin The PL Blues MODERATOR: Ann Longmore, MBA, MA, JD, Executive Vice President, D&O, Fiduciary, and EPL Product Leader, Willis Executive Risks Practice, North America PANELISTS: Christine Dart, Vice President, Global Fiduciary Liability Product Manager, Chubb & Son, Inc. Elizabeth Hopkins, Esq., Counsel for Appellate and Special Litigation, U.S. Department of Labor, Office of the Solicitor Rhonda Prussack, Executive Vice President & Product Manager, Fiduciary Liability Insurance, Executive Liability, Chartis Kenneth E. Rubinstein, Esq., Partner, Nelson, Kinder, Mosseau & Saturley, P.C. Agenda 1.Madoff and other Ponzi schemes 2.Exposures from mass layoffs and reductions in force 3.Case law and litigation trends 4.Whats on the horizon? 5.Questions and answers Madoff and Other Ponzi Schemes Pension Fund for Hospital and Health Care Employees v. Austin Capital Management Ltd. The expanding breadth of claims Getting around the Private Securities Litigation Reform Act of 1995 (PSLRA) Expanding from D&O to Fiduciary Liability Case Law and Litigation Trends: Excessive Fee Cases Claims Undisclosed and hidden fees have huge impact on retirement savings Conflicts of interest Big Issues so Far Who is a fiduciary? Failure to plead plausible claim (Twombley/Iqbal) Whether ERISAs safe harbor provisions in section 404(c) insulate fiduciaries from liability? Prudence of paying retail market price Excessive Fee Cases: To Date Big cases so far: Hecker v. Deere (7 th Cir. 2009), Young v. General Motors (2 nd Cir. 2009), Grabek v. Northrop Grumman (9 th Cir. 2009) Excessive Fee Cases: The Horizon On the horizon: Braden v. Wal-Mart (8 th Cir.) Kanawi v. Bechtel (9 th Cir.) Spano v. The Boeing Corp. and Beesely v. International Paper Co. (7 th Cir.) Taylor v. United Technology (2 nd Cir.) Case Law and Litigation Trends: Employer Stock Drop Cases Big Issues Presumption of prudence Disclosure Class certification - 404(c) - Different patterns of investing - Waivers Large ERISA Stock-Drop Losses Case ID Company Name Filing Date Disposition Date Total Amount($) Time Warner Inc. 07/03/ /27/ ,000, Royal Dutch Shell plc 01/23/ /22/ ,000, BellSouth Corporation 01/15/200410/17/ ,000, Enron Corp. 10/22/ /24/ ,000, Global Crossing, Ltd 02/01/ /23/ ,000, Merrill Lynch & Co., Inc. 11/29/ /27/ ,000, Tyco International Ltd. 10/01/ /01/2010e 70,500, Lucent Technologies Inc. 07/19/ /15/ ,000, Rite Aid Corp. 03/15/ /11/ ,760, Countrywide Financial Corp. 09/06/ /16/2009e 55,000, The Williams Companies, Inc. 02/03/ /15/ ,000, Xerox Corporation 07/01/ /14/ ,000, WorldCom, Inc. 12/20/ /18/ ,150, Delphi Corporation 04/01/ /27/ ,000, Household International 03/31/ /22/ ,500,000 Source: Advisens MSCAd (Master Significant Case and Actions database) Employer Stock Cases: The Horizon Big Cases on Horizon Wendel v. Herzlinger (3d Cir.) In re Citigroup ERISA Litigation (2d Cir.) Loss Pre-emptive Measures Restricting / limiting participant investment Removing employer securities as an investment option - Damned if you do, damned if you dont? Case Law and Litigation Trends: ESOP Cases Two Big Categories of Cases Corporate waste (plan fiduciaries stand idly by while company is looted and assets wasted) Purchase/Sale prohibited unless for adequate consideration ESOP Cases Johnson v. Couturier (E.D. Ca.) Department of Labor asset valuation litigation Company 100% owned by ESOP Buyout of CEO drains most of value of company District court grants preliminary injunction against enforcement of indemnification agreements Ninth Circuit affirms violates ERISAs anti-exculpatory provision Exposures from Mass Layoffs and Reductions in Force (RIFs) Triggers for wrap contracts in stable value funds from mass layoffs or bankruptcy Severance benefits Enhanced early retirement incentives Termination of employer contributions to 401(k) plans Increase in deductibles + participant contributions for medical plans violate Collective Bargaining Agreements (CBA). Exposures from Mass Layoffs and Reductions in Benefits Termination of defined benefit plans PBGC and Toms Foods Inc. Termination of retiree medical benefits Breach of contract (ERISA or the Labor Management Relations Act to enforce CBA) Breach of fiduciary duty in communicating lifetime benefits Claims that benefits have vested Other Exposures from Mass Layoffs + RIFs ERISA 510 suits Miscalculation of benefits Failure to timely distribute benefits Failure to meet notice requirements Whats on the Horizon? Expanding enforcement Slow and shaky economic recovery Under-funded plans Investment losses in defined contribution plans Healthcare reform Questions & Answers Many thanks to Ann Longmore Christine Dart Elizabeth Hopkins Rhonda Prussack Kenneth Rubinstein Case Citations Page Pension Fund for Hospital and Health Care Employees v. Austin Capital Management Ltd Twombley/Iqbal Hecker v. Deere, 556 F.3d 575 (7 th Cir. 2009), amended by 569 F.2d 708 Young v. General Motors, 46 EBC 2278 (2d Cir. 2009) Grabek v. Northrop Grumman, No (9 th Cir. 2009) Braden v. Wal-Mart (8 th Cir.) Kanawi v. Bechtel (9 th Cir.) Spano v. The Boeing Corp. Beesely v. International Paper Co. (7 th Cir.) Taylor v. United Technology (2 nd Cir.) Wendel v. Herzlinger (3d Cir.) In re Citigroup ERISA Litigation (2d Cir.) Johnson v. Couturier (E.D. Ca.)