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ERISA Watch – Fourth Circuit Rules that Top-Hat Plan Can Change Crediting Rate Used to Calculate a Participant’s Payout

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This week’s notable decision, Plotnick v. Computer Scis. Corp. Deferred Comp. Plan for Key Executives, No. 16-1606, __F.3d__, 2017 WL 5162581 (4th Cir. Nov. 8, 2017), required the Fourth Circuit Court of Appeals to determine whether a “top-hat” plan had the ability to change the crediting rate used to calculate a participant’s payout.

In Plotnick, the plaintiffs are participants in the Computer Sciences Corporation Deferred Compensation Plan for Key Executives (the “Plan”).  The Plan is a “top-hat plan,” which is an unfunded, deferred-compensation plan through which key executives could elect to forgo compensation during their employment in exchange for payments in retirement.  When it was first established, the Plan used a crediting rate equal to 120% of the 120-month rolling average yield to maturity on 10-year U.S. Treasury Notes.  After 2003, the Plan’s board changed the crediting rate to track the 120-month rolling average yield to maturity of the Merrill Lynch U.S. Corporates, A Rated, 15+ Years Index as of December 31 of the prior Play year.  This crediting rate gave participants above-market yields and very low volatility.  Because the Merrill Lynch Rate was so predictable, the annual installments a participant received were actually equal until the final payment that closed out the participant’s account.

After plaintiffs retired, the Plan’s board amended the crediting rate again which resulted in a more flexible crediting rate linked to a participant’s selection of one (or more) of four valuation funds:  a money-market fund, an S&P index fund, a core bond fund, and a target-date retirement fund.  But this arrangement included more volatility and risk, including the possibility of losing value in a participant’s notational account.  Because of the lack of predictability, the annual payments could no longer be made strictly equal.

At the time that the amendment took effect, neither of plaintiffs’ accounts decreased in value, but they argued that “(1) the Plan was a unilateral contract that could not be amended after a participant’s retirement; (2) the 2012 Amendment was invalid because the new crediting rates permitted participants’ accounts to lose as well as gain value; (3) the 2012 Amendment was invalid because it did not use a 120–month rolling average, as the previous crediting rates had done, to smooth out market volatility; and (4) the new crediting rate violated the Plan’s requirement that distributions be made in approximately equal annual installments. CSC denied both Appellants’ claims for benefits on July 22, 2013.”

The district court denied plaintiffs’ motion for class certification on adequacy grounds since there was an actual conflict between the interests of the named plaintiffs and certain class members for whom the 2012 Amendment is an economic benefit, not an economic injury.  The district court also granted summary judgment to the company, and held that the Amendment was valid.

Plaintiffs appealed, but the Fourth Circuit affirmed the district court’s conclusion about the Amendment and did not reach the issue of class certification.  Specifically, the court held that the Plan permitted the plan administrator to change the crediting rate and select new crediting rates with a different expected volatility when amending the plan.  Further, the Plan required only that the administrator make payments to participants under the plan in “approximately equal,” rather than exactly equal, annual installments.  The court concluded that regardless of the standard of review applied, the Amendment does not render any contractual promise illusory and the company’s denial of benefits did not represent an abuse of or unreasonable exercise of discretion.

Plotnick was the only published Circuit Court decision from this past week that fell onto my radar but there were several other notable lower court decisions worth reading.  So, don’t stop here (assuming you’ve read this far down).  Enjoy the rest of this week’s case summaries!

Below is Kantor & Kantor LLP’s summary of this past week’s notable ERISA decisions.

Attorneys’ Fees

Second Circuit

Testa v. Becker, et al., No. 10-CV-6229L, 2017 WL 5133341 (W.D.N.Y. Nov. 6, 2017) (Judge David G. Larimer).  The court decided Plaintiff’s motion for attorney’s fees notwithstanding the pendency of the appeals by both parties since Plaintiff has achieved success on the merits, and the possibility that Defendants might eventually prevail on appeal is not in itself a sufficient reason to deny him a fee award.  The court rejected Defendants’ contention that Plaintiff’s requested fee award should be reduced by at least 75% for his “losing” on three out of four claims; Plaintiff did not unreasonably pursue claims or arguments that were obviously going to prove fruitless.  Plaintiff can recover fees for an attorney who performed work on the case even though that attorney was not licensed in the relevant state nor admitted to practice in the relevant district.  The court awarded Plaintiff attorney’s fees in the amount of $148,736.00, and costs in the amount of $689.32, for a total award of $149,425.32.

Fifth Circuit

Manuel v. Turner Industries Group, LLC. et al., No. CV 14-599-SDD-RLB, 2017 WL 5179430 (M.D. La. Nov. 6, 2017) (Judge Shelly D. Dick).  The court denied Defendants’ motion for attorneys’ fees against the unsuccessful plaintiff that they sought in the amount of $68,179.00 by Prudential, and $46,038.00 by Turner.  Although the court disagreed with Plaintiff, it does not consider his positions to be taken in bad faith or completely without merit.  In addition, Plaintiff is unable to pay the requested attorneys’ fees, and there is no evidence that Defendants sought to benefit the beneficiaries of the ERISA plan, or to resolve a significant legal question regarding ERISA in the present case.  The court also granted Prudential’s request for prejudgment interest on the $7,290 in disability benefits that it ordered Plaintiff to repay Prudential, but at the Louisiana statutory rate.

Breach of Fiduciary Duty

Eighth Circuit

Thrivent Fin. for Lutherans v. Acosta, No. 16CV03289SRNDTS, 2017 WL 5135552 (D. Minn. Nov. 3, 2017) (Judge Susan Richard Nelson).  In this lawsuit brought by Thrivent pursuant to section 702 of the Administrative Procedure Act, 5 U.S.C. § 702, challenging a requirement contained in a recent DOL rule which it claims would effectively prohibit it from requiring individual arbitration to resolve disputes with its members, the court granted Thrivent’s motion and preliminarily enjoined and restrained the implementation and enforcement of the BIC Exemption’s anti-arbitration condition against Thrivent until the conclusion of this litigation or such time as the court so orders.

D.C. Circuit

Anthony v. Int’l Ass’n of Machinists & Aerospace Workers Dist. Lodge 1, No. CV 17-1249 (ABJ), __F.Supp.3d__, 2017 WL 5158651 (D.D.C. Nov. 6, 2017) (Judge Amy Berman Jackson).  Application of rules determining eligibility under a plan is purely ministerial and thus, not a fiduciary act.  Plaintiff failed to plausibly allege that District Lodge 1 was a fiduciary under ERISA or that it exercised any fiduciary responsibility.  But, Plaintiff may move forward on his benefit claim against the union at this time.

Disability Benefit Claims

Eighth Circuit

Cassidy v. Union Security Insurance Company, No. CV 16-4087 (JRT/FLN), 2017 WL 5197137 (D. Minn. Nov. 8, 2017) (Judge John R. Tunheim).  Following the Magistrate Judge’s R&R in favor of Plaintiff on de novo review and Union Security’s timely objections, the court determined that Bankers Association, as Plan Sponsor, had plenary authority to confer discretionary authority on Union Security.  The court returned the matter to the Magistrate Judge to determine whether the Plan’s authority provision bestowed “entirely” discretionary authority meriting a deferential standard of review.

Ninth Circuit

Heldt v. The Guardian Life Insurance Company of America, No. 16-CV-00885-BAS-NLS, 2017 WL 5194600 (S.D. Cal. Nov. 9, 2017) (Judge Cynthia Bashant).  In this case where Plaintiff alleged that Guardian violated his privacy rights by disclosing details of his medical condition, the court denied Guardian’s motion to dismiss Plaintiff’s claims for violation of California’s Confidentiality of Medical Information Act and negligence.  At this stage the court cannot determine whether Plaintiff’s allegations show that his claims are conflict preempted as a matter of law.  And, Plaintiff states sufficient facts to allege that Guardian owed Plaintiff a duty of care.

Reetz v. Hartford Life and Accident Insurance Company, No. C17-0084JLR, 2017 WL 5176705 (W.D. Wash. Nov. 8, 2017) (Judge James L. Robart).  In this de novo review case, the court denied Plaintiff’s motion to supplement the record with the evidence from her SSA file since she could have done so prior to the final decision on her long term disability claim.  Although Hartford did not ask Plaintiff for the SSA evidence, that is only relevant in an abuse of discretion context.  On de novo review, it is irrelevant whether and to what extent the administrator considered the SSA’s decision in making its ultimate decision.  “Thus, an administrator’s obligation to ask for extrinsic evidence under an abuse of discretion standard does not necessarily exist under a de novo standard of review, and the court declines to apply such a requirement on de novo review to excuse Ms. Reetz’s failure to provide the evidence she now seeks to include.”  Plaintiff has failed to establish the existence of any “exceptional circumstances” to warrant the consideration of extrinsic evidence.

ERISA Preemption

Ninth Circuit

Huddleston v. Scottsdale Healthcare Hosps. Inc., No. CV-17-02690-PHX-JJT, 2017 WL 5192936 (D. Ariz. Nov. 9, 2017) (Judge John J. Tuchi).  In this matter alleging five state law causes of action relating to Defendant’s failure to pay Plaintiff the severance pay package, the court determined that all claims are preempted by ERISA since the agreement to provide Plaintiff severance pay was a severance pay plan under ERISA.  The court dismissed the claims since Plaintiff conceded that he did not bring his claim for severance through the Plan’s administrative review process before filing the action.

Salinas Valley Memorial Healthcare System v. Envirotech Molded Products, Inc., et al., No. 17-CV-03887-LHK, 2017 WL 5172389 (N.D. Cal. Nov. 8, 2017) (Judge Lucy H. Koh).  In this suit brought by a healthcare system against an ERISA benefit plan for failure to properly pay for medical care that Plaintiff provided to Defendants’ beneficiary, the court determined that Plaintiff’s claims for intentional and negligent misrepresentation are not preempted under 29 U.S.C. § 1144(a).  The relationship between a health care provider and an insurance plan is not an “ERISA-regulated relationship.”

Medical Benefit Claims

Seventh Circuit

W.P. by & through Pierce v. Anthem Ins. Companies, Inc., No. 115CV00562TWPTAB, 2017 WL 5192239 (S.D. Ind. Nov. 8, 2017) (Judge Tanya Walton Pratt).  The court granted Plaintiff’s motion for reconsideration.  “In light of the medical necessity analysis, the Court concedes that it made an error of apprehension. Under the plain meaning of the statute, hours limitations are permitted under subsection (b) of the Autism Mandate. However, hours limitations must comply with the broad mandate of subsection (a) and Bulletin 136’s interpretation which places an affirmative duty on insurers to provide coverage for medical necessity treatments proscribed by a provider in the patient’s treatment plan.”

Pension Benefit Claims

Second Circuit

Amara et al v. Cigna Corp. and Cigna Pension Plan, No. 3:01-CV-2361 (JBA), 2017 WL 5179230 (D. Conn. Nov. 7, 2017) (Judge Janet Bond Arterton).  The court denied Plaintiffs’ request to reinstate its previous ruling that interest between lump sum distribution dates and retirement dates be based on the yearly rates, i.e., using the 30-year Treasury rate from the preceding November for each year.

Fourth Circuit

Plotnick v. Computer Scis. Corp. Deferred Comp. Plan for Key Executives, No. 16-1606, __F.3d__, 2017 WL 5162581 (4th Cir. Nov. 8, 2017) (Before MOTZ, DUNCAN, and WYNN, Circuit Judges).  In this lawsuit brought by retired executives who were participants in an ERISA-governed deferred compensation plan for management or highly compensated employees, the Fourth Circuit Court of Appeals affirmed the district court’s grant of summary judgment to the employer, finding that it did not violate ERISA by amending the plan to adjust the rate at which the participants’ deferred income accounts were credited with future earnings.  Specifically, the court held that the ERISA “top hat” plan permitted the plan administrator to change the crediting rate and select new crediting rates with a different expected volatility when amending the plan.  Further, the Plan required only that the administrator make payments to participants under the plan in “approximately equal,” rather than exactly equal, annual installments.

Sixth Circuit

Titus, Jr. v. Operating Engineers’ Local 324 Pension Plan, No. 16-CV-10951, 2017 WL 5166869 (E.D. Mich. Nov. 8, 2017) (Judge Gershwin A. Drain). The court granted summary judgment in favor of the pension plan, finding that the Trustees did not arbitrarily suspend Plaintiff’s benefits based on his post-retirement work in the construction industry related to his pre-retirement duties.

Tenth Circuit

Berry v. Retirement Benefit Plan of American Airlines, Inc. For Employees Represented By The Transport Workers Union of America, AFL-CIO, an ERISA plan, No. 11-CV-554-JED-FHM, 2017 WL 5163586 (N.D. Okla. Nov. 7, 2017) (Judge John E. Dowdell).  The court affirmed Defendant’s final decision denying Plaintiff’s claim for additional years of Credited Service.  It found that Defendant’s conclusion that Plaintiff’s failure to participate in the 1967 and 1976 Plans resulted in him not accruing Credited Service in the first place is well supported by the record.

Provider Claims

Seventh Circuit

LB Surgery Ctr., LLC v. Boeing Co., No. 17 C 282, 2017 WL 5171222 (N.D. Ill. Nov. 8, 2017) (Judge Sara L. Ellis).  The court found that the anti-assignment provision in the Boeing welfare benefit plan bars LB Surgery from bringing an action under ERISA and dismissed the first amended complaint with prejudice.

Retaliation Claims

Fifth Circuit

Paige v. Pellerin Milnor Corporation, No. CV 16-17785, 2017 WL 5157612 (E.D. La. Nov. 6, 2017) (Magistrate Judge Joseph C. Wilkinson, Jr.).  Five months between a request for short-term disability benefits and employment termination does not create the temporal proximity necessary to establish a prima facie case of retaliation.  Conclusory and speculative statements that Defendant terminated Plaintiff for the purpose of interfering with his right to short-term disability benefits or any speculative future request for long-term disability benefits, for which he never applied, is insufficient to establish the employer’s specific intent to retaliate against him or to interfere with his ERISA benefits rights.

Statutory Penalties

Eleventh Circuit

Atherley v. United Healthcare of Florida, Inc., No. 2:17-CV-332-FTM-99CM, 2017 WL 5157843 (M.D. Fla. Nov. 7, 2017) (Magistrate Judge Carol Mirando).  The court cannot determine at the motion to dismiss stage whether United Healthcare is a claims administrator of the plan rather than a plan administrator under ERISA for purposes of Plaintiff’s document penalty claim.  Plaintiff’s request for “a complete, certified copy of the subject insurance policy/plan in effect at the time of the subject Cleveland Clinic medical services” and “[a] copy of the ‘in-network’ provider list pertaining to type of transplant at issue that was/is in effect following the time of the transplant and related services through the present,” are documents that clearly fall within the broad scope of “other instruments under which the plan is established or operated.”  29 U.S.C. § 1024(b)(4).  Motion to dismiss denied.

Venue

Ninth Circuit

Bewley v. CVS Health Corp., No. C17-802RSL, 2017 WL 5158443 (W.D. Wash. Nov. 7, 2017) (Judge Robert S. Lasnik).  Here, Defendants assert that this case should be transferred to the District of New Jersey pursuant to the first-to-file rule or 28 U.S.C. § 1404(a) because multiple similar actions have already been filed in that district.  The court granted Defendants’ motion and transferred this matter to the United States District Court for the District of New Jersey as being related to Boss, et al. v. CVS Health Corp., et al., No. 17C-1823 (D.N.J. filed Mar. 17, 2017).

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