Employee Retirement Income Security Act of 1974 Archives

Northwestern University Defeats 403(b) Lawsuit

by J. Christian Nemeth and Joseph K. Urwitz | Jun 12, 2018 | Benefit Controversies, Fiduciary and Investment Issues, Retirement Plans

A federal judge in the Northern District of Illinois recently dismissed a lawsuit against Northwestern University alleging that the University and its fiduciaries mismanaged its retirement and voluntary savings plans. This is the latest decision in a series of class action lawsuits against prominent universities in which plaintiffs allege fiduciary violations of the Employee Retirement Income Security Act of 1974, as amended (ERISA) for retirement plans governed by Internal Revenue Code Section 403(b). Northwestern is the second university to obtain a complete victory on a motion to dismiss in a 403(b) university case; the first university to do so was the University of Pennsylvania in Sweda v. University of Pennsylvania.

In Divane v. Northwestern University et al., No. 16 C 8157 (N.D. Ill. May 25, 2018), plaintiffs alleged that Northwestern University and its fiduciaries breached fiduciary duties, engaged in prohibited transactions under ERISA and failed to monitor other fiduciaries. Specifically, fiduciaries allegedly mandated the inclusion of particular stock accounts in the plans, imposing excessive record-keeping fees, improperly allowed payment for record-keeping expenses through revenue sharing, and included too many investment options. The Court rejected all of plaintiffs’ fiduciary duty claims.

The Court also rejected plaintiffs’ claims that defendants engaged in prohibited transactions. Namely, the Court held that there was no transfer of plan assets that would substantiate a prohibited transaction claim under ERISA Section 1106(a)(1)(D) and similarly rejected plaintiffs’ Section 1106(a)(1)(C) argument that fiduciaries engaged in transactions that resulted in “furnishing of goods, services, or facilities between the plan and a party in interest” as a “circular “argument.

The Court denied plaintiffs’ motion for leave to amend, amounting in a complete victory for Northwestern.

Federal Appellate Court Finds That Title VII Bans Gender Identity Discrimination

by Brian Mead and Todd Solomon | May 31, 2018 | Employment

The US Court of Appeals for the Sixth Circuit ruled on March 7, 2018, that workplace discrimination on the basis of gender identity and gender expression violates Title VII of the Civil Rights Act of 1964. The language of Title VII does not expressly prohibit discrimination on the basis of gender identity. However, the US EEOC has taken a broad approach to enforcing Title VII’s prohibition on sex discrimination, arguing that it includes both gender identity and sexual orientation.

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DOL Less Likely to Appeal Fifth Circuit Ruling Vacating Expansion of Fiduciary Rule in Light of Recent SEC Guidance

by Brian Tiemann, J. Christian Nemeth and Samantha Souza | Apr 26, 2018 | Benefit Controversies, Employee Benefits, Fiduciary and Investment Issues, Retirement Plans

In a recent 2-1 decision, the Fifth Court vacated the US Department of Labor’s controversial expansion of the ERISA fiduciary regulations (the New Fiduciary Rule). If the DOL does not seek a rehearing, the Fifth Circuit will enter a mandate revoking the New Fiduciary Rule nationwide. However, given recent fiduciary regulations proposed by the Securities and Exchange Commission, the DOL may be less likely to appeal the ruling and no longer seek to enforce the New Fiduciary Rule.

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ESOP Litigation Trends: Department of Labor Voids Fiduciary Indemnification Agreements to Reach Settlements

by McDermott Will & Emery, Allison Wilkerson, J. Christian Nemeth and McDermott Will & Emery | Apr 12, 2018 | Employee Benefits, Employee Stock Ownership Plans (ESOPs), Fiduciary and Investment Issues

The US Department of Labor has taken the position that certain indemnification clauses are void against public policy under Section 410 of ERISA. This policy has been adopted by private plaintiff classes; as evident from a recent settlement, a policy that voids indemnity provisions can limit defense budgets, make settlements more likely and potentially create dangerous precedent for ESOPs.

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Federal Appellate Court Finds That Title VII Bans Sexual Orientation Discrimination

by Todd Solomon | Mar 15, 2018 | Employee Benefits, Employment, Health and Welfare Plans, Retirement Plans

On February 26, 2018, the US Court of Appeals for the Second Circuit (covering Connecticut, New York and Vermont) ruled that workplace discrimination on the basis sexual orientation violates Title VII of the Civil Rights Act of 1964 (Title VII).

The language of Title VII does not expressly prohibit discrimination on the basis of sexual orientation. However, in 2015, the US Equal Employment Opportunity Commission (EEOC) took the position that Title VII prohibits sexual orientation discrimination under the purview of prohibited sex discrimination. In 2016, the EEOC began filing sexual orientation discrimination lawsuits enforcing that position.

Circuit courts are divided on the question of whether claims of sexual orientation discrimination are viable under Title VII. In March of 2017, the Eleventh Circuit held that sexual orientation discrimination does not violate Title VII. The Seventh Circuit held the opposite the following month, and the Supreme Court declined to decide the split in December. With its en banc decision in Melissa Zarda et al. v. Altitude Express, dba Skydive Long Island, et al., the Second Circuit sided with the EEOC and the Seventh Circuit.

As a result of the decision, employers may see increased litigation in the area of sexual orientation discrimination. To protect against potential lawsuits, employers should consider updating their nondiscrimination policies to prohibit discrimination on the basis of sexual orientation and gender identity. In addition, employers should perform sexual orientation harassment training for employees and managers.

The decision also raises potential concerns for employee benefit plans. Although the Employee Retirement Income Security Act of 1974, as amended (ERISA) generally preempts state laws that relate to employee benefit plans, ERISA does not preempt other federal laws, including Title VII. While certain spousal benefits and rights under qualified retirement plans are required by federal law to be extended to same-sex spouses, the same explicit mandates do not apply to welfare plans. Employers should consider whether any of their employee benefit plans discriminate against employees with same-sex spouses (e.g., excluding same-sex spouses from coverage under a self-funded medical plan). Such distinctions may be ripe for legal action as a result of the decision and the EEOC’s ongoing enforcement efforts.

Tax and Benefits Considerations for Service Providers for Family Offices

by Patrick J. McCurry and Todd Solomon | Feb 22, 2018 | Employee Benefits, Employment, Executive Compensation

Patrick McCurry and Todd Solomon wrote this bylined article on how family offices are using sophisticated techniques to compensate their employees in a tax-efficient manner. “We expect to see the continued use of equity to deliver tax-efficient compensation to family office employees while aligning the economic interests and incentives of the family and the family office’s key employees,” the authors wrote.

Originally published in Tax Executive, February 1, 2018.

Going Up but Never Down | 2018 ERISA Penalties

by McDermott Will & Emery and Diane Morgenthaler | Feb 15, 2018 | Employee Benefits, Employee Stock Ownership Plans (ESOPs), Health and Welfare Plans, Retirement Plans

The Department of Labor announced increased penalties for employee benefit plans under ERISA. The increases generally apply to penalties that involve employee benefit reporting and disclosure failings if the penalty is assessed after January 2, 2018, and if the violation occurred after November 2, 2015. We’ve compiled a resource outlining the ERISA penalty amounts assessed for violations on or before January 2, 2018, and those amounts assessed after January 2.

Your Fiduciary Responsibilities and 403(b) Plan Litigation

by J. Christian Nemeth, Joseph K. Urwitz and Todd Solomon | Dec 19, 2017 | Benefit Controversies, Employee Benefits, Fiduciary and Investment Issues, Health and Welfare Plans, Retirement Plans

Joe Urwitz, Todd Solomon and Chris Nemeth discuss provisions of The Employee Retirement Income Security Act of 1974 (ERISA) of particular relevance to tax-exempt entities and their investment managers, as well as ongoing litigation against Section 403(b) plans.

Settling the Standard for Prudence? Fall Brings New Guidance for ESOP Trustees

by McDermott Will & Emery, Allison Wilkerson, J. Christian Nemeth and McDermott Will & Emery | Dec 5, 2017 | Employee Benefits, Employee Stock Ownership Plans (ESOPs), Fiduciary and Investment Issues, Retirement Plans

Through a series of recent settlements, the US Department of Labor has outlined the process steps fiduciaries should follow in connection with a transaction involving a purchase from, or sale to, an employee stock ownership plan.

The Quandary of Publicly-Traded Employer Stock in a 401(k) Plan

by McDermott Will & Emery | Jun 20, 2017 | Benefit Controversies, Employee Benefits, Employee Stock Ownership Plans (ESOPs), Fiduciary and Investment Issues, Retirement Plans

Offering employer stock in a 401(k) plan investment lineup can seem like a win-win situation. It can enable employees to become company owners—real, skin-in-the-game, participants in their employer’s economic future—through a simple deferral election. The U.S. Supreme Court has even recognized the value of employer stock funds, confirming that Congress sought to encourage their creation through provisions and standards contained in the Employee Retirement Income Security Act of 1974 (“ERISA”).

However, in the wake of a series of high-profile employee lawsuits seeking recovery against Enron, Lehman Brothers, and other employers for losses from 401(k) investments in employer stock, such funds can—almost as easily—seem a recipe for disaster. This article examines the quandary that employer stock funds pose for plan sponsors, who must navigate ERISA’s careful balance of (1) ensuring fair and prompt enforcement of employee rights under employer-provided retirement plans while (2) encouraging employer creation of these plans.

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Originally published in Bloomberg Law, May 25, 2017

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