Compliance February 4, 2020

CBIZ Actuarial Error Lawsuit Moves Ahead

A court has ruled against CBIZ’s motion for summary judgement in a lawsuit accusing the firm of making costly actuarial errors.

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The U.S. District Court for the Western District of Pennsylvania has ruled in the case of UPMC v. CBIZ, determining that the lawsuit should not be dismissed as a matter of summary judgement.

The plaintiffs in the case are UPMC, also known as the University of Pittsburgh Medical Center, as well as a subsidiary operating in the central part of the state known as UPMC Altoona. UPMC operates health care facilities in and around Pittsburgh; the organization is also the parent and supporting organization for numerous other nonprofit health care providers, each existing as a separate and distinct corporate entity. Plaintiff UPMC Altoona is one such subsidiary of UPMC, case documents show, having been acquired in July 2013.

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At the core of this litigation are allegations that the defendants—including some named individuals as well as CBIZ Inc. and CBIZ Benefits and Insurance Services Inc.—made critical actuarial errors while conducting certain analyses for UPMC. According to plaintiffs, the errors allegedly cost UPMC more than $100 million dollars in unanticipated pension obligations after the UPMC Altoona acquisition.

According to the plaintiffs, CBIZ was paid substantial fees to perform substantial amounts of actuarial work for UPMC.

“Yet during the course of this engagement, from at least July 1, 2008, through February 2015, defendants failed to adhere to actuarial standards of practice and consequently materially erred in valuing the obligations and liabilities of Altoona’s pension benefit plans for funding, compliance and accounting purposes,” the lawsuit states. “Defendants’ multiple errors caused the Altoona plans’ projected benefit obligation (PBO) to be falsely stated on Altoona’s balance sheet at $240 million. In fact, Altoona’s PBO was then $373 million. Defendants had understated the liability by approximately $132.5 million.”

As noted in the ruling, the defendants moved for summary judgment on the plaintiffs’ malpractice and lost opportunity claims. They asserted that these claims fail because “(1) they are too speculative; (2) Altoona had sufficient funds to meet its increased funding obligation; (3) UPMC Altoona suffered no damages as a result of defendants’ calculations; and (4) the claims are pre-empted by the Employee Retirement Income Security Act [ERISA].”

On the first matter, the court notes that under Pennsylvania law, a plaintiff cannot recover damages that are “too speculative, vague or contingent.” Additionally, a plaintiff cannot recover damages beyond those which can be established with “reasonable certainty.” Some speculation regarding damages is permissible, as evidence of damages may consist of probabilities and inferences and need not be “completely free of all elements of speculation” or proved with “mathematical certainty.”

“Here, plaintiffs have shown that the damages they claim are not speculative and that they can establish them with reasonable certainty,” the ruling states. “Plaintiffs claim that defendants’ errors in reporting its true pension liabilities harmed them because the errors prevented Altoona from seeking and obtaining [available pension funding] relief, which caused plaintiffs to pay off liabilities they could have avoided.”

Moving on the second issue, the District Court holds that numerous factual disputes about Altoona’s financial situation preclude summary judgment on these grounds.

“For example, defendants say that Altoona could have made additional budget cuts to fund its pensions; plaintiffs say this was not feasible,” the ruling states.

The third and fourth claims are similarly allowed to proceed.

“ERISA does not pre-empt professional malpractice actions brought by a plan sponsor because such actions are unlikely to interfere with plan administration and do not implicate the funding, benefits, reporting or administration of an ERISA plan,” the ruling states. “However, ERISA pre-empts malpractice claims brought by plan beneficiaries because ERISA itself contains a civil enforcement scheme for plan beneficiaries. Here, ERISA does not pre-empt plaintiffs’ malpractice and lost opportunity claims because they do not relate to the administration of an ERISA benefit plan. The mere fact that an ERISA plan is a part of plaintiffs’ claim is not enough to trigger ERISA pre-emption.”

Compliance February 4, 2020

2nd Circuit Again Remands Decade-Old PwC ERISA Litigation

The appellate court disagreed with a lower court finding that reformation of PwC's cash balance plan and the recalculation of benefits in accordance with the reformed plan was an unavailable relief.

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Plaintiffs filed a lawsuit known as Laurent v. PricewaterhouseCoopers LLP some 15 years ago, claiming PricewaterhouseCoopers’s pension plan distribution formula used an improper “whipsaw calculation” to set payment amounts.

The suit suggests that, under the Employee Retirement Income Security Act (ERISA), a lump sum whipsaw calculation must use a “fair estimate” of the rate of return an average participant would have received had he remained in the plan until normal retirement age. In basic terms, this estimate is used by pension plans to project benefits forward to the normal retirement age, and then to pay out benefits at the “present value” of the projection.

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According to the plaintiffs in Laurent, the interest rates used by the PricewaterhouseCoopers pension artificially deflated the present value of certain lump sum benefits being paid to participants. They argue that ERISA requires whipsaw payments to guarantee that plan participants who take distributions in the form of a lump sum when they terminate employment receive the actuarial equivalent of the value of their accounts at retirement.

This week, a new ruling has been filed in the case by the U.S. 2nd Circuit Court of Appeals, which has remanded the matter for still further proceedings in the U.S. District Court for the Southern District of New York.

The text of the new ruling spells out the complex procedural history leading up to this point: “In a prior appeal, we affirmed the District Court’s holding that the plan violated the statute, and we remanded for the District Court to consider the appropriate relief. On remand, however, defendants‐appellees moved for judgment on the pleadings pursuant to Federal Rule of Civil Procedure 12(c), contending that the relief requested by plaintiffs‐appellants—reformation of the plan and the recalculation of benefits in accordance with the reformed plan—was unavailable as a matter of law.”

The District Court agreed with that argument, but now the 2nd Circuit has vacated and remanded that decision.

For context, prior to the recently decided appeal, PwC had moved for judgment “on the pleadings,” arguing that ERISA did not authorize the relief sought by plaintiffs. In agreeing with PwC, the District Court held that ERISA did not authorize the recalculation of benefits in the circumstances here, and so it dismissed the second amended complaint with prejudice on that basis—notwithstanding the violation of ERISA.

“Plaintiffs appealed, contending that the District Court erred in granting PwCʹs motion, because ERISA does in fact authorize the relief they sought,” the new 2nd Circuit decision explains. “We agree, and for the reasons detailed [in this decision], we vacate the judgment and remand for further proceedings consistent with this opinion.”

The Circuit Court’s rationale for ruling against PwC’s arguments is detailed at length in the text of the ruling, but it boils down to the simple conclusion that “in the absence of controlling authority otherwise, we are inclined to follow the Supreme Court’s express preference that violations of ERISA should be remedied.”

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