The United States District Court for the Northern District of Texas recently issued several important decisions in MDL No. 1983, a multidistrict litigation proceeding designed to address claims related to employee benefit plans created under § 412(i) and § 419 of the Internal Revenue Code. For example, in two similar § 419 cases, the Court reaffirmed its earlier rulings and dismissed plaintiffs’ fraud-based claims with prejudice. The Court concluded that the allegations that plaintiffs were induced to establish § 419 plans based on allegedly fraudulent representations that the plans would be valid and subject to favorable future tax consequences were simply non‑actionable statements of opinion or predictions of future action. The Court explained that because plaintiffs could identify no law or IRS guidance that made plaintiffs’ § 419 plan illegal when the policies were sold, “any representations or omissions made … about the tax benefits or legality of the plans were not false when made but rather non-actionable opinions or predictions regarding future IRS enforcement.”
On a related note, the United States District Court for the Southern District of Florida recently granted the defendant insurer’s motion for final summary judgment in a lawsuit relating to the use of insurance policies to fund defined benefit pension plans under § 412(i) of the Internal Revenue Code. In that case, plaintiffs established a § 412(i) pension plan and purchased insurance policies issued by the insurer to fund the plan. The IRS audited plaintiffs’ plan and concluded that the plan failed to comply with § 412(i)(3) because it was “overfunded.” Plaintiffs sued, arguing that the insurance policy was unsuitable for use in a § 412(i) plan. However, the court concluded that the § 412(i) plan’s alleged noncompliance with § 412(i) was not caused by any incompatibility between the insurance policy and § 412(i). Rather, the IRS concluded the plan violated § 412(i)(3) because plaintiffs purchased too much insurance and overfunded the plan – a point which plaintiffs’ own expert conceded. Plaintiffs also argued that the insurer had guaranteed that plaintiffs’ § 412(i) plan would comply with § 412(i). However, the Court concluded that the insurer made no such promise and, to the contrary, repeatedly disclosed that it did not establish or administer § 412(i) plans; guarantee the validity of any such plans; or provide tax or legal advice regarding these plans.