Compliance June 21, 2024

Judge Denies American Airlines’ Bid for Summary Judgment in ESG Lawsuit

The trial is confirmed to begin Monday, June 24, in Texas federal court.

Reported by

American Airlines’ efforts to prevent a trial—starting Monday—against its offering of environmental, social and governance-focused investment options in its 401(k) plan were extinguished in federal court this week.

Federal District Judge Reed O’Connor in a June 20 opinion denied American Airlines Inc.’s eleventh-hour request for summary judgment in a class action-certified lawsuit, alleging the airline’s 401(k) plan sacrificed investment performance by including investments that utilized ESG factors.

Get more!  Sign up for PLANSPONSOR newsletters.

The trial in the case, Spence v. American Airlines Inc, et al., is now slated to convene at the U.S. District Court for the Northern District of Texas, in Fort Worth on Monday morning.

The court denied American Airlines’ motion for summary judgment “in its entirety,” O’Connor wrote. The legal standard to survive summary judgment is a complainant must provide evidence from which a factfinder could conclude that the accused breached their duty of prudence, wrote O’Connor.

“The summary judgment record makes clear that a factfinder could find defendants breached their duty of prudence by failing to monitor investment managers and failing to address the facts and circumstances of ESG proxy voting and shareholder activism present within the Plan,” he wrote.

O’Connor disagreed with American Airlines Employee Benefits Committee’s arguments. The court determined genuine material disputes remain to be decided at trial.

“Each of these fact disputes speaks to the fundamental question of whether defendants acted reasonably or unreasonably with respect to their fiduciary duties of prudence and monitoring,” O’Connor wrote. “Taken together, the court finds that defendants failed to carry their burden at the summary judgment stage to show that no reasonable factfinder could find in their favor as to the breach of prudence.”

The class action complaint was brought by a former pilot in June 2023. Complainant Bryan Spence alleged the airline’s 401(k) plan sacrificed performance for ESG factors.

Earlier this month O’Connor issued an order, setting the trial date, following the entry by attorneys for each side of pretrial materials, including witnesses that each expects to testify.

Attorneys for Spence anticipate calling at trial seven probable witnesses, including Spence himself and one expert witness attorney, litigation consultant and J.B. Heaton, operator of the law firm One Hat Research LLC. Attorneys for American Airlines expect to call four probable witnesses including Spence, two possible witnesses, three expert witnesses and one records custodian.

Heaton independently published a book called “ESGBS: The False Narrative of Environmental, Social & Governance Investing,” criticizing ESG investing, in 2023.

Neither the attorneys for the plaintiff nor the counsel for the defendants responded to requests for comment. Representatives for American Airlines declined to comment.

The plaintiff is represented by Hacker Stephens LLP and Sharp Law LLP; the defendant is represented by partner Russell Cawyer and attorneys with the law offices of Kelly Hart & Hallman LLP and O’Melveny & Myers LLP.

Compliance June 21, 2024

ERIC and SPARK Concerned About DOL’s Lost and Found Participant Data Request

The information request is too broad, rushed and may create data security issues, the industry lobby groups argued.

Reported by

Major industry leaders expressed concern this week about the breadth of the Department of Labor’s data request to create the lost and found database for missing retirement plans, as required by the SECURE 2.0 Act of 2022.

The DOL issued an information request in April asking interested parties to comment on what information the DOL should collect to make a lost and found database possible to unite missing participants with their plans, while also imposing the least burden possible on fiduciaries. The request also proposed some items that sponsors should voluntarily turn over to the DOL, including participant names and Social Security numbers, contact information and whether they have received their benefits already, among other items. The comment period for this request and proposal expired on June 17.

Get more!  Sign up for PLANSPONSOR newsletters.

The ERISA Industry Committee characterized the request as a “lost and found data grab.” In an emailed statement, ERIC said that: “The proposal requests far more information from plan administrators than necessary and exceeds the authority permitted under the statute. The proposal lacks details about how the DOL will safeguard worker and retiree data and does not include a process for notifying plan administrators and plan participants in the case of a data breach.”

In its comment letter, ERIC elaborated that: “For example, DOL simply does need to know the nature, form, and amount of the benefits owed in order to help a participant locate a plan administrator.” Further, ERIC noted that this information is beyond what is authorized in the statute.

ERIC also implored the DOL to continue to coordinate its efforts with the Internal Revenue Service to reduce administrative burden on providers, by obtaining information from Form 8955-SSA, a form that identifies separated participants with vested benefits.

In the information request, the DOL indicated that the IRS did not have the legal authority to share this form with the DOL to create the database and contact participants.

ERIC responded by writing: “It is unclear why much of the requested information could not be provided by the IRS using data provided on the Form 8955-SSA.” It added that it “is difficult to understand why much of the information could not be provided in a redacted or modified form, or some other arrangement reached. Additionally, to the extent that the IRS’ reticence is attributable to a perceived intent to conduct proactive outreach to participants using this data (which the statute does not authorize), DOL should clarify it does not intend such communications.”

Form 8955-SSA is already shared by the IRS with the Social Security Administration, hence the SSA in the form’s name. When retirees claim Social Security benefits, the SSA uses the filing to inform them of their unclaimed benefits.

The Society of Professional Asset Managers and Recordkeepers also weighed in. In its letter, they asked the DOL to permit recordkeepers to send the participant information over instead of plan sponsors.

SPARK also warned the DOL of the risk of false positives, or participants who see that they are entitled to benefits to which they are not actually entitled, because the benefits were distributed in the past and the records were not updated to reflect that fact in the database.

Lastly, SPARK urged the DOL not to rush to meet the statutory deadline of December 29, 2024. SPARK recommended that the DOL explore an interim option before creating a more thorough platform later. The industry group explained that requiring sponsors to use their 2023 Form 5500, due at this year’s end, would be unmanageable for plan sponsors since the database regulations are not even complete yet and sponsors will not have the time to turn over all the requested information.

«