At the request of the Second Circuit Court of Appeals, the Department of Labor, on February 17, 2011, submitted a letter brief in the pending Faber v. Metropolitan Life Insurance Co. appeal. The plaintiffs in Faber alleged that MetLife breached its ERISA fiduciary duties by distributing ERISA-governed life insurance benefits through Retained Asset Accounts ("RAA"). Plaintiffs' claim, which was asserted as a putative class action, was dismissed by the Southern District of New York on a motion to dismiss when the Court held that the plaintiffs failed to state a claim for breach of fiduciary duty under ERISA.
In December, the Second Circuit asked the Department of Labor the following three questions related to MetLife's use of RAAs when it pays benefits to ERISA-governed group life insurance plan beneficiaries:
- How, if at all, does ERISA's "guaranteed benefit policy exemption" (29 U.S.C. § 1101(b)(2)) apply to life insurance benefits MetLife pays into an RAA, and in particular, does an equivalent amount of the assets in MetLife's general account become "assets of the plan"?
- When MetLife establishes an RAA, does its ERISA fiduciary duties cease or are there ERISA fiduciary duties for the life of the account?
- When an RAA is established, to what extent, if any, does MetLife retain any of the beneficiaries' policy benefits because MetLife retains the actual funds that back the RAA?
The DOL's letter brief, which supports the District Court's dismissal of plaintiffs' complaint, responds to each of the Court's questions by relying on the terms of the relevant ERISA-governed welfare benefit plans in Faber as its guidepost. By way of background, the DOL explained that ERISA does not place restrictions on the method by which welfare benefit plans provide benefits, so long as the method chosen is set forth and communicated to participants in plan documents. Accordingly, the DOL commented that the "key question" to be addressed in Faber is whether the provision of life insurance benefits through RAAs complies with the terms of the relevant Plans at issue in Faber . In this respect, the DOL opined that MetLife's practice of creating RAAs to pay Plan benefits is consistent with the Plans' terms - which state that any death benefits in excess of $7,500 will be deposited in an interest bearing RAA - and therefore, "there is no basis under the facts and circumstances of this case for overturning the district court decision."
Specifically in response to the Court's three questions, the DOL commented as follows:
- Based on the language of the relevant Plans' documents, ERISA's "guaranteed benefit policy exception does not apply to the post-[benefit] distribution relationship between the insurer [MetLife] and the individual [RAA] account holder."
- Once the RAAs are established pursuant to the terms of the relevant Plans, any fiduciary obligations as to the payment of plan benefits through the RAAs cease because the rights and duties owed to the RAA account holders under the ERISA-governed Plans are satisfied and new non-ERISA governed contractual relationships are created between MetLife and the account holders regarding the maintenance of the RAAs.
- Because the distribution of the life insurance benefits into the RAAs terminates the ERISA-governed relationship between the Plans and MetLife as to the account holders' benefits, the benefits placed in the RAAs are no longer plan assets. Therefore, once the RAAs are created, "[t]he Plans do not retain any ongoing ownership interest in the [RAAs] or MetLife's general account."
In responding to the Court's three questions, the DOL distinguished the facts of Faber from the First Circuit's decision in Mogel v. UNUM Life ins. Co. of America. The DOL opined that the outcomes for both cases are dependent on the relevant Plans' language and whether the Plans permit the payment of benefits into RAAs. According to the DOL, because contrary to the facts at issue in Mogel, the Plans in Faber provide for the payment of benefits through RAAs, MetLife's act of maintaining the RAAs is not an ERISA fiduciary function and the funds deposited into the RAAs are not Plan assets.
While it remains to be seen whether and, if so, to what extent, the Second Circuit will adopt the opinions articulated in the DOL's letter brief in its anticipated Faber decision, these opinions will likely be relied upon by insurers as they continue to defend against ERISA breach of fiduciary duty claims related to their payment of ERISA plan benefits through RAAs. Further, the importance of this brief extends beyond future and pending litigation, as it provides critical plan drafting guidance for ERISA plan settlors and administrators who pay benefits through RAAs.