Fiduciaries Beware! Two Recent Cases Expose Potential Grounds for ERISA Liability
The path of an ERISA fiduciary has long been fraught with uncertainty and paved with obstacles, including the seeming potential for liability for nearly every plan-related business decision. We take a quick look below at two recent pending case developments that help illustrate the perils that can await the unwary ERISA fiduciary.
SMM Health Care Corp. – Proposed Class Action Settlement
On January 17, 2019, U.S. Eastern District of Missouri Judge Henry Edward Autrey granted preliminary approval to a $60 million deal to settle a proposed class action suit brought by participants and retirees against SMM Health Care Corp. In this suit, plaintiffs alleged that SMM Health Care Corp. misused an ERISA exemption normally used by churches and their affiliates, which they viewed inappropriate because the company “is not [actually] a church but a nonprofit hospital conglomerate that has chosen to compete with commercial businesses.” Plaintiffs allege that the misuse of the church plan exemption, which effectively shielded the plan from ERISA’s strict funding requirements, resulted in the under funding of their retirement savings by approximately $813 million.
The judge, noting that the case had already been dismissed once and is presently on appeal, reasoned that, absent the settlement, the case would be likely to result in high costs over time and to present significant obstacles to success for the plaintiffs.
If approved, the settlement would require SSM Health Care Corp. to: (i) fully fund its retirement plan over the course of ten years: (ii) pay $15 million to the plan for each year from 2019 to 2022: and (iii) make certain additional payments to workers who previously took lump-sum payments from the retirement plan.
Notably – one might say counter intuitively — plaintiffs agree, as a condition to the settlement, to never again challenge SSM Health Care Corp’s status as a “church plan” under the ERISA exemption. This leaves the underlying legal issue unresolved, at least for now.
Yale University Retirement Plan — Proposed Class Action
The second case is a more typical “stock drop” class action proposal, brought by employees of Yale University who participate in a Yale-sponsored retirement plan. The participants accuse the plan of costing participants millions of dollars through a combination of bad investments. Plaintiffs are seeking class certification due to the number of affected participants (approximately 18,000), and the existence of common questions of law and fact upon which their claims ultimately depend. The certification bid is currently pending.
Briefly stated, plaintiffs allege that Yale University breached its ERISA duty of loyalty to retirement plan investors by, among other things, offering investment funds from TIAA-CREF and Vanguard — which it hired to service the funds — thereby overpaying for the funds. The proposed class action is one of several similar actions currently pending that have been brought by workers at major American universities, alleging mismanagement of their retirement savings under ERISA.
As an ERISA fiduciary, it is essential that you keep informed as to the latest case law developments — including pending litigation developments such as those cited above — that can have an impact on situations that may be like your own. As always, we will continue to keep our eyes open as to the cases discussed above and similar litigation developments that could affect you in your fiduciary capacity.