The Supreme Court’s upcoming term is shaping up to be a blockbuster for those seeking clarity on the federal law that governs 401(k) retirement and other employer-sponsored benefit plans.
The justices have already agreed to hear two cases brought under the Employee Retirement Income Security Act when the next term starts in October, and two more cases are waiting in the wings.
“The next term could shake out to be the term of ERISA,” said Jaime Santos, an appellate attorney at Goodwin Procter.
While ERISA is not a hot-button issue like abortion, gun control, or drug prices, the law has an exceptionally broad reach because it sets standards for most retirement and health-care plans.
In March 2018, 58 percent of private-sector workers had access to both employer-provided medical care and retirement benefits, according to the Labor Department’s Bureau of Labor Statistics. And as of Dec. 31, 2018, U.S. retirement assets totaled $27.1 trillion, or about 32 percent of all household financial assets, according to the Investment Company Institute, a global association of regulated funds.
“ERISA is a major federal law,” said Mark Smith, a partner at Eversheds Sutherland. “It protects both retirement plans and employer-provided health plans and as such it has a significant place in the economic security of working Americans.”
It’s common to have one or two ERISA cases each term, but to have as many as four cases worthy of the court’s review is unusual, Santos said.
“It gives the court a good opportunity to resolve some really complicated legal issues,” she said. “The cases are not overly ideological or partisan. They are more about classic statutory interpretation.”
The Supreme Court has had a bit of a drought when it comes to ERISA cases. The court heard one employee benefits case in the 2017-2018 term and one in the 2018-2019 term, but Smith said they did not involve ERISA.
“The two cases teed up for the next term raise some hard-core ERISA litigation process questions,” he said.
In Intel Corp. Investment Policy Committee v. Sulyma, which the court took June 10, the justices are being asked to settle a dispute over when the clock starts ticking on the three-year statute of limitations for lawsuits filed under ERISA.
Intel Corp.’s Investment Policy Committee is appealing a U.S. Court of Appeals for the Ninth Circuit decision that said the timer starts when the plan participant has “actual knowledge” of the alleged breach, as the statute requires.
But the Sixth Circuit has ruled the timer starts when plan participants are provided with, or specifically directed to, documents disclosing all the material facts relevant to their claim.
If the Ninth Circuit’s decision is upheld, defense attorneys fear it will make it almost impossible for employers to win on a motion to dismiss a claim brought against them.
“It’s a fool’s errand to predict what the court will do in any case, but I think they saw this and wanted to put a stop to that,” said Greg Daugherty, a partner at Porter, Wright, Morris & Arthur LLP.
“I think they’ll say the Ninth Circuit was a little too generous to the plaintiffs,” he said.
The court’s decision to hear Intel’s case came about a week after the justices agreed to hear Retirement Plans Committee of IBM v. Jander, a dispute over International Business Machines Corp. stock in the company’s 401(k) plan.
Plan participants filed a proposed class action after the value of IBM shares dropped by more than 7 percent. IBM is appealing a Second Circuit ruling that allowed the case to go forward.
Some defense attorneys say the ruling created a back door for stock drop cases following the high standard the Supreme Court set for claims in Fifth Third Bancorp v. Dudenhoeffer.
In addition to those two cases, the U.S. solicitor general has recommended the court hear a dispute over whether retirement plan participants and beneficiaries can seek relief for a breach of fiduciary duty under ERISA if the benefit plan is over-funded.
Because the plan had not yet faced a risk of default, the Eighth Circuit said the plan participant or beneficiary had not suffered an “actual injury” and was therefore not “within the class of plaintiffs whom Congress has authorized to sue under” ERISA.
In urging the court to take Thole v. U.S. Bank N.A., Solicitor General Noel Francisco said this is a question that comes up frequently.
“However framed, the issue has generated tension, if not an outright conflict, among the courts of appeals,” he wrote in his brief. “Moreover, most lower courts have decided the issue incorrectly.”
The justices are scheduled to consider whether to hear that case at their closed-door conference June 20.
Another case pending the court’s review is Putnam Investments LLC v. Brotherston.
The justices have also asked for the solicitor general’s views in this dispute over who in an ERISA breach of fiduciary duty claim has the burden of proof.
The Second, Sixth, Seventh, Ninth, Tenth, and Eleventh circuits said plan participants have to prove that a fiduciary’s breach of duty resulted in losses to the plan.
But the First, Fourth, Fifth, and Eighth circuits have said it’s up to the fiduciary to prove their actions didn’t cause any plan losses.
—With assistance from Kimberly Robinson
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