Plan Sponsor Errors At Heart of Appeals Court Ruling

Proper procedure is absolutely essential when it comes to fielding ERISA claims, as one plan sponsor has had to learn the hard way. 

The United States Court of Appeals for the Seventh Circuit has backed a lower court’s ruling in the interesting case of Central Illinois Carpenters Health And Welfare Trust Fund vs. Con-Tech Carpentry LLC.

Unlike other recent court cases to make the retirement industry news headlines, this one is not gaining attention for its price tag or the intractable nature of the legal principles being debated. Instead the case presents some telling examples of clear-cut procedural errors which resulted in the 7th Circuit’s refreshingly short, 5-page decision approving some $100,000 in damages for the plaintiffs.  

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Simply speaking, the appeals court found no grounds to overturn a district court’s earlier decision to hold the plan sponsor liable for roughly $70,000 in delinquent contributions (plus interest and fees), owed to several multiemployer health and welfare benefit funds. This initial decision was based not on close consideration of the plan documents or contribution control practices of the plan sponsors—but simply on the fact that the plan sponsor apparently made no effort to formally answer the charges before some critical deadlines had passed.

As Mark Casciari, partner at Seyfarth Shaw LLP, and Christopher Busey, an associate in the firm’s labor and employement department, explain in a Lexicology blog post, the plaintiffs “sought roughly $70,000 in delinquent contributions from the defendant employer. The defendant failed to answer the complaint within 21 days. The plaintiffs then requested a default judgment, and the defendant again failed to respond. When the company failed to appear at the hearing on the default motion, the district court entered a default judgment.”

While the plaintiffs still had to submit adequate proof of damages, they did so successfully in the eyes of the district court, case documents show, leading to nearly $100,000 in total damages. As Casciari and Busey explain, only then did the defendants formally respond, “by filing a motion under Rules 60(b) and 55(c) of the Federal Rules of Civil Procedure. The district court denied the motion, and the company appealed.”

NEXT: Plan sponsors must mind court deadlines 

Casciari and Busey further explain that the company “could not rely on Rule 55(c) because it did not seek to set aside the entry of default until after the court entered judgment. The company’s arguments also could not satisfy the Rule 60(b) standard of ‘excusable neglect.’ It first argued that it believed answering was unnecessary because the parties were already discussing settlement. The court responded that a party can both answer a complaint and work towards settlement simultaneously.”

The text of the appellate court decisions explains the decision this way: Instead of properly filing a Rule 55(c) motion, “Con-Tech filed a motion for a stay in favor of arbitration. So by January 13, when the district judge turned to the subject of damages, the complaint had not been answered, a default had been entered, no Rule 55(c) motion had been filed, and Con-Tech had not contested the plaintiffs’ evidentiary submissions about relief. And once the district court entered its judgment, the time to seek relief for ‘good cause’ under Rule 55(c) expired.”

The appellate court explains Rule 55(c) clearly says that “to set aside a default judgment a litigant must file a motion under Fed. R. Civ. P. 60(b).” The requirements under that rule are steeper, for example in that relief under Rule 60(b)(1) depends on excusable neglect, and in that “appellate review is deferential,” as discussed/applied in the previous case Moje v. Federal Hockey League (7th Circuit 2015).

“Con-Tech filed a Rule 60(b) motion on January 15,” the appellate decision shows. “The motion also invoked Rule 55(c), but too late. Con-Tech told the district judge that it had not ignored the suit but had instead started negotiating with plaintiffs’ lawyers, seeking a satisfactory settlement. The judge replied that Con-Tech may not have ignored the plaintiffs’ demands, but that it had ignored the litigation.”

Casciari and Busey explain the defendants also “contended that filing a substantive response would waive its right to arbitration. The court held, however, that nothing prevents a party from answering with a demand for arbitration. The defendant thus failed to show excusable neglect and instead decided to march to the beat of its own drum.”

Nearly Half of Employers Automatically Enroll Participants

More are also adopting automatic escalation.

Employers are increasingly adopting automatic features, including voluntary increases, and employees are responding heartily, according to the most recent Bank of America Merrill Lynch Plan Wellness Scorecard. Today, nearly half (47.5%) of employer plans now automatically enroll their employees into their plan. The number of 401(k) plans combining auto-enrollment and auto-increase grew 40% in the first half of 2015. Employers offering voluntary auto-increases rose 36%, and 24% more employees opted for this.

Employees are enthusiastically embracing their workplace financial benefit plans, with the number of first-time 401(k) savers growing 44% in the first six months of the year compared with the same period in 2014.

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Roth accounts also saw significant growth, with the number of contributors rising 21% and their average deferral rates increasing 20% over the previous year’s contributions.

Health savings account (HSA) usage is up across all generations, and in the first six months of the year the number of workers contributing to an HSA rose 42%. While Baby Boomers have the highest HSA balances and the fastest balance growth, Millennials now account for 33% of HSA enrollment, up significantly from 9% in 2010.

“We are pleased to see employees, particularly the younger generations, become more engaged with their employer-offered benefits year after year,” says Lorna Sabbia, head of retirement and personal wealth solutions for Bank of America Merrill Lynch. “Employers play an integral role in the financial wellness of their employees. Strategic plan design, including diversification, automation and simplification, can make a tremendous impact in overall employee participation and engagement.”

NEXT: Employee engagement

Mobile access to Merrill Lynch’s Benefits Online web portal grew 77%, bringing mobile access to the site to 19%. Bank of America Merrill Lynch also recently launched Advice Access, a professional saving and investment advice service tailored to an employee’s individual situation; Advice Access usage increased 7%, and today, 57% of all plans offer this service.

Employees who use Advice Access tend to have better financial wellness scores; they have an average 8.6 score, compared to a 7.4 score for those who do not use Advice Access. Further, 92% of Advice Access participants are considered financially well, compared to 69% of non-users.

Bank of America Merrill Lynch also recently launched a retirement income estimate tool. Thirty-eight thousand employees used this tool within the first six weeks of its launch, and 7% of all visitors to its web portal click through to the tool.

Despite the uptick in mobile and online traffic, employees clearly still want to meet with advisers in person. In the first half of the year, sign up and attendance at one-on-one meetings increased 192%, and group meetings increased by 93%.

As Bank of America Merrill Lynch says in its report: “More employers are recognizing the potential of providing education on site via seminars and personal consultations. Employees clearly appreciate on-site access to financial professionals who can talk about their personal situation, follow up with additional materials and, in general, provide the guidance so many employees want and need.”

The report comes on the heels of the Bank of America Millennial Year-End Snapshot, which found that 40% of Millennials said the Great Recession made them more hesitant to invest in the stock market. The Bank of America Merrill Lynch Plan Wellness Scorecard is culled from an analysis of the 2.6 million retirement plan participants it serves. The full report can be downloaded here.

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