Top 7 legal cases of 2012

Stock drop cases Stock drop cases

In Pfeil v. State Street Bank and Trust Company (6th Cir.), the court held that the presumption of prudence (adopted by the Second Circuit) does not apply at the pleading stage when plaintiff-participants allege that defendants were imprudent in holding company stock as a plan investment.

The 6th Circuit’s holding in Pfeil makes it much more difficult for defendants in a stock drop case to have the case dismissed on a summary judgment motion. “The implications for employers, if they’re involved in one of these stock drop cases, they may not be able to get out of a case based on a motion for summary judgment,” says Moore. “They may have to get past the motions, go through discovery, and trial prep before all the facts are finally fleshed out and the court can make a determination.”

Third-party administrators: fiduciaries or not? Third-party administrators: fiduciaries or not?

Guyan International, Inc./Pritchard Mining Company, Inc. v. Professional Benefits Administrators, Inc. held that a third-party administrator who commingled health plan monies and used plan funds for its own benefit was a fiduciary because of its control over plan assets — even though the administrative services agreement stated that it was not a fiduciary and it argued that it exercised only ministerial duties for the plan.

“It’s a cautionary tale to TPAs that the words in the contract are not going to control the functions they perform,” says Moore. “If the court thinks they’re self-dealing in plan assets, they’re not going to honor any of those types of words in the contract that they are not a fiduciary.”

Retiree medical benefits Retiree medical benefits

In Reese v. CNH America, LLC, the 6th Circuit expanded on its 2009 decision where it held that a plan sponsor could make reasonable changes to vested retiree medical benefits. This plan involved unionized employees under a collectively bargained agreement. The 6th Circuit recognized that, unlike pension benefits, health benefits change over time so a vested welfare benefit provides an evolving and not a fixed benefit. A plan sponsor can change those vested welfare benefits as long as the changed plan design provides a benefit that is “reasonable commensurate” with the original plan design.

Based on this decision, “an employer is free — unilaterally, without bargaining — to make reasonable changes to retiree medical benefits. That is very welcome news for employers,” says Moore.

Reimbursement under ERISA Reimbursement under ERISA

U.S. Airways Inc. v. McCutchen raises the issue of whether a benefit plan administrator is entitled to full reimbursement for payments made to a plan participant injured in an accident where the participant sued and recovered damages from a third party. The Supreme Court has heard oral arguments in the case in late November.

“The question before the Supreme Court is: What is going to control? Is it going to be the way the sponsor drafted the plan? Or is it going to be the court’s notion of unjust enrichment?” says Casciari.

Summary plan descriptions Summary plan descriptions

In another case dealing with financial remedies under ERISA, the 9th Circuit’s decision in Skinner v. Northrop Grumman Retirement Plan B interpreted the Supreme Court’s 2011 decision in CIGNA v. Amara to hold that employees who received a flawed summary plan description – which didn't adequately explain that their benefits would be offset – were not entitled to receive equitable remedies under ERISA.

The significance of this case, according to Casciari, is that it limits monetary recovery under ERISA -- outside the plan terms – to those situations where deceit or fraud is involved. “It is a narrow reading of the Amara decision,” he says.

Defense of Marriage Act Defense of Marriage Act

In October, a federal appeals court in New York struck down the Defense of Marriage Act, finding that the law’s denial of federal benefits to married same-sex couples is unconstitutional. It’s the second time DOMA has been struck down this year; a federal appeals court in Boston made a similar ruling in May. The Supreme Court is expected to eventually take up the issue. “From a benefits standpoint, nothing’s really going to happen on that until the Supreme Court rules on it,” explains Todd Solomon, a partner with McDermott Will & Emery.

For more on what plan sponsors can do to ensure their benefits plans stay on the right side of the law with respect to same-sex unions, read Take inventory of plans to ensure legal compliance or listen to this podcast with Mercer’s Cathy Stamm.

Health care reform Health care reform

And while everyone is familiar with the Supreme Court’s decision to uphold the Patient Protection and Affordable Care Act, Howard Shapiro, an attorney with Proskauer, believes we’ve not seen the last of litigation over PPACA. Everything from how PPACA’s independent review organizations will fit in with ERISA’s claims review procedures to the way grandfathered plans have handled mandated benefits to the legislation’s whistleblower provisions to the contraception mandate could spark litigation down the road.

The Supreme Court decision on the health care reform law took center stage this year as the most significant case to affect benefit plan sponsors. And while it certainly was an important case, there were other legal decisions in 2012 that have considerable implications for plan sponsors. EBN asked four benefits lawyers — Dickinson Wright’s Cynthia Moore, Seyfarth Shaw’s Mark Casciari, McDermott Will & Emery’s Todd Solomon and Proskauer’s Howard Shapiro — for their views on some of the year’s most important cases. [Images: Thinkstock]

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