Cash Balance Plan Conversions:

  • In Thompson v. Retirement Plan for Employees of S.C. Johnson & Son, Inc., Nos. 10-3917, 10-3918, 10-3988 & 10-3989, 2011 WL 2463550 (7th Cir. June 22, 2011), the Seventh Circuit resolved two issues in a class action by cash balance plan participants who alleged the plan had improperly calculated their preretirement lump sum distributions by failing to adjust the amount for future interest credits: (1) when did plaintiffs’ claims accrue for statute of limitations purposes, and (2) was the plan’s proposed method for recalculating the improper lump sum distributions entitled to deference. The court concluded that plaintiffs’ claims accrued upon receipt of the improper lump sum distributions because that event served as an unequivocal repudiation of entitlement to benefits beyond plaintiffs’ account balances. The court accordingly barred the claims of a group of participants who received their lump sum distributions more than six years before the suit commenced. Defendants argued that the limitations period should have run from the time of distribution of the SPD and receipt of several newsletters that advised participants regarding the calculation of benefits under the cash balance formula. The court found, however, that because the rights at issue were relatively obscure and the references in the SPD and newsletters offered only oblique guidance, there had not been sufficient notice to begin the statute of limitations period. Next, as to the proper remedy, the Seventh Circuit held that defendants’ proposed recalculation methods were not entitled to deference because the plans did not grant the administrators discretion to calculate lump sum distributions. The court reasoned that because the plan provided an invalid calculation method, the administrator’s proposed recalculation methods were novel creations rather than the result of interpretive discretion. In so holding, the court distinguished Conkright v. Frommert, 130 S. Ct. 1640 (2010), which held that administrators’ plan interpretations are entitled to deference despite an initial impermissible interpretation. (See May 2010 Newsletter.) The Seventh Circuit remanded to the district court to fashion an appropriate formula that was not the result of any deference to the plan defendants’ views.
  • On remand from the Tenth Circuit, the district court granted in part and denied in part Solvay Chemicals Inc.’s motion for summary judgment in Jensen v. Solvay Chemicals Inc., "___ F. Supp. 2d ___, No. 06 Civ. 00273, 2011 WL 2174896 (D. Wyo. May 24, 2011). The court held that there were genuine issues of material fact as to whether Solvay’s failure to provide adequate notice to participants regarding the conversion of the company’s pension plan to a cash balance plan (which the Tenth Circuit already determined to be deficient under Section 204(h) of ERISA) was intentional. The Tenth Circuit remanded the case with the directive that unless Solvay’s violation of 204(h) was “egregious,”— i.e. there was an intentional failure to meet the statute’s notice requirements — plaintiffs would have no remedy under ERISA. The court rejected Solvay’s argument that to prove “intentional failure” plaintiffs had to provide evidence that Solvay “deliberately omitted information from the 204(h) Notice and made the conscious decision to distribute a deficient 204(h) notice.” The court was satisfied that there was enough circumstantial evidence supporting the contention that Solvay knew the statutory requirements and failed to follow them, which it deemed sufficient to deny in part Solvay’s motion for summary judgment. The court granted Solvay’s motion for summary judgment, however, with respect to the issue of whether Solvay violated section 204(h) by failing to provide participants with “most of the information” required by ERISA. In so doing, the court reasoned that of all the deficiencies claimed by plaintiffs, the Tenth Circuit “only found one required piece of information missing,” and agreed with the Tenth Circuit that the notice provided participants with sufficient information to determine the magnitude of the reduction in benefits.

Withdrawal Liability:

  • In In re Marcal Paper Mills Inc., __ F.3d __, No. 09-4574-cv, 2011 WL 2410740 (3rd Cir. June 16, 2011), the Third Circuit affirmed the district court’s decision holding that withdrawal liability under ERISA incurred by a contributing employer as a result of work performed by covered employees after the employer filed a petition for Chapter 11 bankruptcy was afforded a priority status in the bankruptcy proceeding, such that the post-petition withdrawal liability amount would be paid before unsecured claims. The withdrawal liability allocated to pre-petition work would not be afforded the same priority. The court reasoned that post-petition withdrawal liability should be treated as an administrative expense because it was necessary for the employer’s continued operation. Additionally, the employer promised its covered employees that they would receive benefits for all work performed post-petition.

Retiree Benefits:

  • In Kerber v. Qwest Group Life Ins. Plan, __ F.3d __, No. 10-1349, 2011 WL 2151201 (10th Cir. June 2, 2011), the Tenth Circuit held that Qwest did not breach the plan terms or its fiduciary duties when it amended its retiree life insurance plan to reduce benefits under a “minimum benefits provision.” The terms of the plan included a “reduction formula” whereby life insurance proceeds remained constant until the retiree reached age 66, and then decreased over a number of years until it reached 50% of the original amount. Qwest incorporated a reservation of rights provision in the plan that would allow it to “amend or terminate any or all provisions in the future for any reason.” In 2005, the Qwest Plan Design Committee unilaterally reduced the benefits available under the “minimum benefits provision” from $20,000 to provide a fixed $10,000 benefit. The Tenth Circuit held that the reservation of rights clause unambiguously reserved Qwest’s right to reduce the retirees’ benefits. Furthermore, the court held that the minimum benefits provision was a limitation only on the reduction formula and not an overarching limitation on the plan as a whole. Finally, the court concluded that Qwest did not misrepresent to participants Qwest’s ability to amend or terminate the plan on account of clear language in the plan itself, a human resources director’s statements made during a video conference, and additional confirmation statements mailed to participants between 2001 and 2004.
  • In Witmer v. Acument Global Technologies Inc., No. 08-12795, 2011 WL 2111899 (E.D. Mich. May 26, 2011), the district court granted summary judgment to Acument, holding that the company’s reservation of rights clause unambiguously gave Acument the right to amend, modify, suspend, or terminate retirees’ health care and life insurance benefits. The court held that the reservation of rights clause defeated the retirees’ claims under ERISA and the Labor Management Relations Act. Among other claims, the retirees argued that their benefits vested because the governing collective bargaining agreements (CBAs) provided for “continuous” health benefits. The court rejected this argument, concluding that the CBAs’ reservation of rights clause was entirely inconsistent with an intent to vest benefits. The district court also held that the fact that Acument chose not to exercise its rights until late 2007 did not constitute a waiver of such rights.

Proper ERISA defendant:

  • In Cyr v. Reliance Standard Life Insurance Co., Nos. 07-56869, 08-55234, 2011 WL 2464440 (9th Cir. June 22, 2011), expressly overruling its prior decisions and statements on this issue, the Ninth Circuit held that potential defendants in actions for benefits under ERISA Section 502(a)(1)(B) should not be limited to plans and plan administrators. The plaintiff, a participant in her employer’s long-term disability plan, brought suit against the insurer who effectively controlled her benefits determination decision, even though it was not the named plan administrator. The Ninth Circuit held that entities other than the plan or the plan administrator may be the “logical” defendants where, for example, they perform activities that a plan administrator ordinarily would, such as making benefit determinations and paying benefits. Considering the Supreme Court’s decision in Harris Trust & Savings Bank v. Salomon Smith Barney, Inc., 530 U.S. 238 (2000), that a non-fiduciary may be held liable under ERISA Section 502(a)(3), the Ninth Circuit concluded there are no statutory or regulatory limits on who may be sued under ERISA Section 502(a), and thus there was no reason to read a limitation into ERISA Section 502(a)(1)(B).

Standard of Review:

  • In Viera v. Life Ins. Co. of North America, __ F.3d __, No. 10-2281, 2011 WL 2279175 (3d Cir. June 10, 2011), the Third Circuit held that language in an accidental death and dismemberment policy requiring that the claimant furnish “proof of loss satisfactory to us” was insufficient to confer discretion on the administrator to make a benefits decision. Therefore, LINA was not entitled to the deferential “abuse of discretion” standard of review, and the case was remanded to the district court to review LINA’s decision to deny benefits de novo. In so holding, the court cited authority from the Second, Seventh, and Ninth Circuits, all of which have held that the ambiguity in the language “satisfactory to us” must be resolved in favor of the insured. The court also recognized the existence of a circuit split on this issue, given that the First, Eighth, and Tenth Circuits have found that the same language is sufficient to trigger discretionary review. The court held that to be insulated from de novo review, the plan must unambiguously communicate that the administrator has broad authority to interpret, implement, and even change the plan’s rules. While there are no “magic words” required for a policy to reserve discretion, the court suggested the following safe harbor language: “Benefits under this plan will be paid only if the plan administrator decides in its discretion that the applicant is entitled to them.”


  • In Boos v. AT&T Inc., __ F.3d __, No. 10-50353-cv, 2011 WL 2163611 (5th Cir. June 3, 2011), the Fifth Circuit affirmed the district court’s decision holding that a “concession” benefits program, which essentially provided free or discounted telephone services to AT&T retirees in the region and reimbursement for telephone services paid for by out-of-region (“ORR”) AT&T retirees, was not a defined benefit plan under ERISA because it did not provide “taxable income.” The court “conclude[d] that although Concession does provide income to some retirees, such income is incidental to the benefit. The ‘primary thrust’ of Concession is to provide retirees with discounted phone service, which the vast majority of the beneficiaries receive as ‘no additional cost’ service… We find it significant that a retiree’s status as either an in-region or an ORR beneficiary, and thus whether he receives income from Concession, is not immutable, but is purely a function of whether he lives in the Defendants’ service area. In short, no beneficiary of Concession has a certainty of income from it.”

Class Certification:

  • In Otte v. Life Ins. Co. of N. Am., __ F. Supp. 2d __, No. 09-cv-11537-RGS, 2011 WL 2307404 (D. Mass. June 10, 2011), the district court conditionally certified a class of 90,000 to 130,000 participants in 5,000 different life insurance plans as to claims that CIGNA and LINA violated ERISA in paying life insurance benefits by crediting accounts from which beneficiaries could withdraw their benefits. Specifically, plaintiffs alleged that the companies’ retention, comingling, use, and investment of benefits owed to participants constituted a breach of fiduciary duties and a prohibited transaction. In certifying the class, the court held that the claims met the typicality requirement, despite the fact that 5,000 different plans were involved, because the claims implicated a plan-wide practice rather than the language of individual plans or SPDs, and the companies were fiduciaries as to the benefits made available – but not actually transferred – to beneficiaries. The class was certified pursuant to Rule 23(b)(3), and the court determined that individual damage calculations would be limited to “a formulaic calculation of the share to be allocated to each class member from the proposed constructive trust.” The court also certified two subclasses based on the statute of limitations: (1) plaintiffs who had actual knowledge of the material aspects of the accounts at least three years before the suit, and (2) those who did not.
  • In Yost v. First Horizon Nat’l Corp., No. 08-2293, 2011 WL 2182262 (W.D. Tenn. June 3, 2011), the district court certified a class of 401(k) plan participants who alleged that plan fiduciaries breached their ERISA duties by permitting plan investments in company stock and proprietary mutual funds from 2003 to 2006, while the company was at risk due to, inter alia, its involvement with subprime mortgage-backed securities. In so ruling, the court held that the named plaintiffs had standing because they held the challenged investments during the proposed class period and alleged they suffered actual injury to their plan assets, but putative class members who suffered no loss lacked standing. The court also determined a class was appropriate despite defendants’ contentions that each participant controlled his own unique investments in up to eleven different investment funds and suffered unique losses, if any, because the court found that the need for individual damage calculations does not defeat typicality. Further, the court held that defendants’ potential ERISA Section 404(c) affirmative defense did not render the claims atypical because § 404(c) is not relevant at the class certification stage, opining that “it is far from clear that the § 404(c) safe harbor defense is available in cases like this one.” The court created a subclass of participants who signed releases, and conditioned certification on the parties’ ability to precisely define other appropriate subclasses. In an earlier ruling, the court refused to apply the “presumption of prudence” at the motion to dismiss stage (see November 2010 Newsletter).

Stock Drop Litigation:

  • In Tatum v. R.J. Reynolds Tobacco Co., No. 02-0373, 2011 WL 2160893 (M.D.N.C. June 1, 2011), following a four-week trial addressing whether defendants breached their fiduciary duties under ERISA by allegedly mismanaging the R.J. Reynolds Capital Investment Plan, plaintiffs, a class of employees and retirees of RJR who owned Nabisco stock when it was removed from the plan as an investment option, moved to amend their complaint to conform to the evidence presented at trial and requested a ruling on the subject of the proposed amended complaint: “whether defendants followed the proper amendment procedures in the Plan documents when they issued an amendment to the plan removing former company stock funds, and, if not, whether that amendment is invalid.” The district court ruled that the plan amendment authorizing the liquidation of company stock from the plan was invalid because the plan’s amendment procedures, which required a majority vote or written instrument from the plan’s committee, were not followed. In so ruling, the court determined that the plan committee’s prior decision to cease offering the Nabisco stock fund as an investment option did not authorize the liquidation of the stock held by the plan at that time, and rejected defendant’s contention that “fraud, bad faith or detrimental reliance” must be shown to invalidate a plan amendment. A motion to decertify the class is currently pending.


  • In Kirkendall v. Halliburton, Inc., No. 07-cv-289-JTC, 2011 WL 2360058 (W.D.N.Y. June 9, 2011), the district court granted Halliburton’s motion for judgment on the pleadings on class claims that sought, among other things, redetermination of plaintiffs’ benefits under an ERISA pension plan. Plaintiffs argued that their benefits had been impermissibly reduced during a company merger. The court ruled that the named plaintiffs failed to allege any facts showing they had submitted a claim for benefits under the claims procedures established by the plan, rejecting the argument that an inquiry about eligibility and benefits constituted a claim. The court also determined that plaintiffs failed to make a clear and positive showing that pursuing administrative remedies would have been futile. Thus, the court dismissed the case for failure to exhaust administrative remedies. The court also held that plaintiffs could not circumvent the exhaustion requirement by artfully pleading their benefit claims as breach of fiduciary duty claims. Lastly, the court held that Halliburton did not violate ERISA Section 204(g) (the “anti-cutback rule”), reasoning that the rule only applies when there has been an actual amendment to the terms of a plan, and rejecting the participants’ contention that Halliburton’s “systematic denial of vesting service” constituted a plan amendment triggering the anti-cutback rule.

Breach of Fiduciary Duty:

  • In Christopher v. Hanson, No. 09-3703 (JNE/JJK), 2011 WL 2183286 (D. Minn. June 6, 2011), the district court denied in part and granted in part defendants’ motion for summary judgment. The lawsuit involved two transactions between a company and its employee stock ownership plan (“ESOP”). Plaintiffs, a corporation and the trustees of the ESOP it sponsored, alleged that individuals who formerly were the company’s owners, directors, and an ESOP trustee, breached their fiduciary duties by artificially inflating the price of the company’s stock during transactions whereby the defendants sold ownership of the company to the ESOP. The court refused to grant summary judgment to defendants on various claims related to plaintiffs’ allegations that defendants breached their fiduciary duties under ERISA. The corporation also alleged state-law claims under the Minnesota Business Corporation Act for breach of fiduciary duty and the duty of loyalty, which the court reasoned were not preempted by ERISA because the claims were brought by the corporation (rather than the ESOP plan itself) against its former directors and would have existed with or without the ERISA plan. The court did grant summary judgment to defendants with respect to the claim that the former members of the company’s board of directors aided and abetted the alleged tortuous conduct of the former ESOP trustee because there was no evidence defendants had actual knowledge of the alleged conduct.


  • In Landree v. Prudential Ins. Co. of Am., No. 10-CV-05353-RBL, 2011 WL 2414429 (W.D. Wash. June 13, 2011), the court held that Washington’s statute barring discretionary clauses in insurance contracts was not preempted by ERISA. Consequently, the state statute voided the plan’s discretionary clause, and the court applied de novo review to the plan’s decision denying plaintiff’s long term disability claim. The court concluded that ERISA’s savings clause, Section 514(b)(2)(A), saved the state law from preemption because the statute (i) is specifically directed to entities engaged in insurance, and (ii) substantially affects the risk pooling arrangement between insured and insurer. Further, the court denied defendant’s motion for summary judgment because it concluded there were genuine issues of material fact regarding plaintiff’s ability to perform the duties of his regular occupation.
  • In Horizon Blue Cross Blue Shield of New Jersey v. Transitions Recovery Program, No. 10-3197 (RBK/KMW), 2011 WL 2413173 (D.N.J. June 10, 2011), the district court denied a health care provider’s motion to dismiss Horizon’s state law claims as preempted by ERISA. Horizon’s lawsuit against Transitions alleged that the provider submitted fraudulent claims resulting in payment of over $8 million for claims not covered by Horizon’s plans. Horizon alleged claims under a New Jersey insurance statute, as well as common law fraud and misrepresentation claims. The court rejected Transitions’ argument that ERISA’s civil enforcement provision completely preempted the claims by falling within ERISA Section 502(a)(3). The court held that, while Horizon was a fiduciary that could bring a civil action, it could not bring an action under Section 502(a)(3) for the relief sought by Horizon, i.e., monetary damages. The court also held that ERISA Section 514 did not expressly preempt Horizon’s state law claims. Regarding the state insurance statute claims, the court held that because the statute creates rights and obligations separate and distinct from ERISA, and does not dictate or restrict the choices available under ERISA plans with regard to benefits or administration, it was not preempted. The court also held the state common law claims were not predicated on the existence of an ERISA plan and did not implicate ERISA concerns.
  • In Loffredo v. Daimler AG, No. 10-14181, 2011 WL 2262389 (E.D. Mich. June 6, 2011), the district court held that ERISA preempted state law claims by a group of retired Chrysler LLC executives who alleged that the defendants -- including the former majority owner of Chrysler LLC Cerberus Capital Management LP -- breached their fiduciary duties by failing to protect plaintiffs’ assets in a supplemental executive retirement plan during Chrysler LLC’s descent into bankruptcy. The court reasoned that even though the plan at issue was a top-hat plan (one desgined for a select group of management or highly compensated employees) exempt from ERISA fiduciary duty provisions, the state law claims were preempted by ERISA. Specifically, the fiduciary breach claims were completely preempted because they fell within the scope of ERISA’s exclusive enforcement mechanism, and the remaining state law claims were preempted because they related to the ERISA top-hat plan and sought an alternate enforcement mechanism.

Injunctive Relief:

  • In Davis v. Unum Group, No. 03-940, 2011 WL 2438632 (E.D. Pa. June 16, 2011), the district court granted Unum’s motion for partial summary judgment with respect to plaintiffs’ claim for injunctive relief under ERISA Sections 502(a)(2) and (3). Plaintiffs sought injunctive relief in the form of an “independent and fair procedure” to review all of Unum’s long-term disability claim denials or terminations. After first holding that one of the plaintiffs lacked standing by virtue of having received all benefits due to him, the court noted that relief under Section 502(a)(3) is available only when there is no alternative remedy under other provisions of Section 502. Since plaintiffs had also alleged a claim under Section 502(a)(1)(B) for reversal of the termination of disability benefits, the court found they were precluded from seeking independent review under Section 502(a)(3). The court also precluded plaintiffs from bringing a claim for independent review of their benefit claims under Section 502(a)(2), as such relief would remedy their individual injuries, rather than any injuries to the plan. Moreover, the court held that a 2004 multi-state regulatory settlement agreement entered into by Unum and the Department of Labor rendered moot plaintiffs’ claim for independent review.

Rehearing denied:

  • On May 26, 2011, the Seventh Circuit denied Kraft’s petition for rehearing en banc in George v. Kraft Foods Global, Inc., __ F.3d __, No. 10-1469, 2011 WL 1345463 (7th Cir. Apr. 11, 2011). Judge Cudahy, who dissented, in part, from the majority’s opinion, voted in favor of rehearing. In George, plaintiffs claimed that the Kraft 401(k) plan’s company stock fund was imprudently structured as a unitized fund, and that excessive fees were paid to plan service providers. The district court dismissed these claims on summary judgment. (See March 2010 Newsletter.) The Seventh Circuit’s decision revived plaintiffs’ fiduciary breach claims, holding that defendants’ failure to properly document their decision to continue the unitized nature of the company stock fund created a genuine issue of material fact.


  • In Eagan v. AXA Equitable Life Ins. Co., No. 06-7637 DSF (C.D. Cal. June 6, 2011), the court granted final approval to a $2.5 million settlement in a retiree rights class action. Plaintiffs alleged AXA improperly capped its contributions to the retirees’ health benefits because the plan documents containing the cost-sharing changes were not properly adopted. Under the terms of the settlement, AXA’s contributions toward retiree health costs will be frozen until December 31, 2011, and each class member will receive a portion of the settlement amount under the terms of the plan of allocation. After the freeze period, AXA may change the plan, but from January 1, 2012 to December 31, 2012, it cannot reduce its benefit cost contributions to any individual class member by more than twenty-five percent.