Compliance March 31, 2020

Supreme Court Denies Review of UPenn ERISA Lawsuit

A last ditch effort to point out that another circuit found no evidence of fiduciary misconduct in a similar case apparently did not persuade the high court it needed to resolve a circuit split.

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Without explanation, the U.S. Supreme Court denied a petition by the University of Pennsylvania to have the high court review a case alleging its retirement plan fiduciaries violated their Employee Retirement Income Security Act (ERISA) duties.

In its petition, the university asked whether the pleading standard the court established in its decision in Bell Atlantic Corp. v. Twombly governs breach of fiduciary duty claims under ERISA. The petition also asked “whether a complaint states a plausible claim for breach of fiduciary duty under ERISA if it alleges that a retirement plan’s investment options charged excessive fees and underperformed, but does not allege any fiduciary conduct inconsistent with lawful management of the plan.”

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The university pointed out that in Twombly, the high court held that allegations that are “merely consistent with” antitrust violations—but “just as much in line with” lawful behavior—fail to state a claim for relief. It reaffirmed that principle in Ashcroft v. Iqbal, stressing that Twombly provides “the pleading standard for ‘all civil actions.’” And, in Fifth Third Bancorp v. Dudenhoeffer, it held that “the pleading standard as discussed in Twombly and Iqbal” governs breach of fiduciary duty claims under ERISA.

Last May, the 3rd U.S. Circuit Court of Appeals revived the lawsuit against fiduciaries of the University of Pennsylvania’s 403(b) plan, which had been fully dismissed by a District Court in 2017. The petition pointed out that the 3rd Circuit’s reasoning was a split from other circuit court decisions.

On March 26, the university filed a supplemental brief attempting to bolster its argument to the Supreme Court based on a 7th Circuit decision to affirm the dismissal of a similar case against Northwestern University. In that case, the appellate court found no fiduciary misconduct by plan fiduciaries and said, “Taken as a whole, the amended complaint appears to reflect plaintiffs’ own opinions on ERISA and the investment strategy they believe is appropriate for people without specialized knowledge in stocks or mutual funds.”

Apparently, the Supreme Court was unpersuaded.

Compliance March 31, 2020

DB Plan Relief Included in the CARES Act

The bill provides a delay for minimum annual required contributions and relief for plans that may have benefit restrictions triggered due to a drop in funding levels.

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The CARES (Coronavirus Aid, Relief and Economic Security) Act signed into law March 27 not only includes provisions related to defined contribution (DC) plans, but it also provides relief for defined benefit (DB) plan sponsors.

Blogs and client alerts from multiple law firms report that Section 3608 of the CARES Act provides a delay for minimum annual required contributions (ARCs) that would otherwise be due from single-employer DB plans during this calendar year. 

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The new due date for any such contribution is now January 1, 2021. Any contributions that are delayed are increased by interest for the period beginning on the original due date to the actual payment date.

The CARES Act also provides relief for required benefit restrictions. For plan years beginning on and after January 1, 2008, the Pension Protection Act of 2006 (PPA) imposed new benefit restrictions on plans that do not meet specific funding percentage levels. If a plan’s adjusted funding target attainment percentage (AFTAP) is less than 80%, there are restrictions on distributions that may be made to participants and on the ability to enhance benefit accruals.

Under the CARES Act, a plan sponsor may elect to treat the plan’s AFTAP for the previous plan year —the year ending before January 1, 2020—as the AFTAP for plan years which include calendar year 2020. This may allow some plans to avoid triggering certain benefit restrictions in 2020 that would otherwise apply.

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