3 important and intriguing cases including one in which a plan participant didn't recall reading the plan documents. (Photo: Shutterstock)
The Supreme Court will hear three separate cases brought under the Employee Retirement Income Security Act this session, which began on October 7.
Decisions on the critical questions raised likely won't be handed down until next June.
#1: Intel Corp. Investment Policy Committee v. Sulyma
As is often the case, the issue before the Supreme Court is narrower than the claims first alleged against two Intel Corp. retirement plans by an employee in October 2015.
The Supreme Court will decide whether a 3-year statute of limitation period in section 413(2) of ERISA bars the participant from bringing his claim.
The 3-year limit runs "from the earliest date on which the plaintiff had actual knowledge of the breach or violation," according to section 413(2).
The original claim brought in the Northern District of California alleged two retirement plans sponsored by Intel and overseen by its Investment Policy Committee were imprudently managed.
Both plans held proprietary offerings that included significant allocations to hedge funds and private equity funds.
The funds returned positive gains, but lagged those of equity indexes, which surged in the aftermath of the 2009 financial crisis.
Intel successfully had the case dismissed as time-barred under the 3-year limitation period.
The employee who brought the suit worked at Intel between 2010 and 2012. He began receiving required plan documents on the QDIA target-date fund he was invested in in 2011. And in 2012, he received a required Summary Plan Description detailing the allocations to alternative investments, and the cost of the funds. Documents were available through a company portal.
When asked in depositions if he had reviewed the available plan documents, the plaintiff admitted to visiting the portal, but repeatedly testified that he did not "think" he reviewed the specific plan documents.
In dismissing the case, the District Court ruled the plaintiff had "actual knowledge" of the facts underlying his claims because they were disclosed in plan documents.
But the Ninth Circuit Court of Appeals reversed that decision. While it acknowledged the participant had sufficient information available to him, the fact that he testified to not reading the documents, or not recalling reading them, meant that he did not have actual knowledge of facts outside the 3-year window.
The question before the Supreme Court is critical and can be imagined to affect any sponsor of a retirement plan: Is it good enough to simply provide necessary information in necessary plan documents, or are sponsors required to assure plan participants actually read the documents?
The case is slated for argument on December 4.
#2: Retirement Plans Committee of IBM v. Jander
The Supreme Court will revisit fiduciary management questions specific to employee stock ownership plans (ESOPs), which were first addressed in Fifth Third Bancorp v. Dudenhoeffer.
In October 2014, IBM divested its Microelectronics business, which it had valued at over $2 billion. The business had lost more than $600 million a year between 2012 and 2014—it lost $720 million in 2013.
Unable to find a buyer, IBM reached an agreement with a chipmaker under which IBM paid the third party $1.5 billion and the third party agreed to supply semiconductors to IBM.
At the close of the deal, IBM announced a $2.4 billion write-down and another $800 million in costs of the deal. By the end of the day the deal was announced, IBM's stock price dropped more than $12 a share, or 7 percent of its value.
Two lawsuits were filed in the Southern District of New York alleging company fiduciaries imprudently managed the ESOP by failing to disclose the losses the Microelectronics unit was incurring.
Both were dismissed on the grounds that earlier disclosure of the business' losses could have harmed investors and retirement savers in the ESOP more than not disclosing them.
The Second Circuit Court of Appeals reversed the lower court, ruling that "no prudent fiduciary could have concluded that an earlier disclosure would have done more harm than good," according to analysis in the amicus brief filed by U.S. Solicitor General.
The Solicitor General's brief did not advance the interests of either party, but did say the United States "has a substantial interest in this Court's resolution of the question presented."
Arguments are scheduled for November 6.
#3: Thole v. U.S. Bank, N.A.
The Supreme Court will determine whether participants in a defined benefit plan can sue plan fiduciaries for mismanagement of assets even though the plan's beneficiaries have not lost any benefits.
In the case originally filed in 2013, retiree participants in U.S. Bank's defined benefit plan alleged it was mismanaged between 2007 and 2010, when assets were solely invested in equities, including mutual funds managed by a bank subsidiary.
By 2008, the plaintiffs alleged the plan had lost $1.1 billion, reducing the pension's funded status to 84 percent.
In May of 2013, as the case was in the discovery phase in the U.S. District Court for the District of Minnesota, U.S. Bank made a $311 million contribution to the plan, well in excess of its required annual contribution, bringing the plan to a funded status above 100 percent.
The District Court dismissed the claim in December of 2015 on the grounds that the plaintiffs' claims were moot, as the plan was now fully funded. The Court of Appeals for the Eighth Circuit upheld the decision.
In recommending the Supreme Court review the case, the U.S. Solicitor General said the question of whether or not participants in an over-funded defined benefit plan have standing to sue under ERISA has "generated tension, if not an outright conflict," among courts of appeals, and said most lower courts have decided the issue "incorrectly."
The Solicitor General did issue an opinion on the case in its recommendation to the High Court.
The plaintiffs in the U.S. Bank case are "squarely within the class of plaintiffs Congress has authorized to sue under ERISA," the Solicitor General's brief said.
"Nothing in the text of ERISA conditions a fiduciary's duties to beneficiaries on whether the plan is a defined-benefit or defined-contribution plan, or whether the plan is overfunded or underfunded," the Solicitor General said.
Arguments have yet to be scheduled.
READ MORE:
© Touchpoint Markets, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.