After much wrangling (and following what looked like the death of the measure), Congress passed and the President signed an extension of the pension smoothing provisions that were in the 2012 legislation known by the acronym "MAP-21."  The legislation passed this time because it is revenue generating (smoothing cuts required contributions, which increases taxable income and, therefore, taxes).  The revenue helped balance expenditures included in the Highway and Transportation Funding Act of 2014.

In English, the provision "smooths" funding by holding off the impact of recent years' low interest rates.  (I'll keep the math simple--there is a paragraph in Section 430 of the Internal Revenue Code that was scheduled to phase in lower rates over a period of years and the recent legislation just extended the period of years over which applicable rates will be held at a higher level.  Higher rates reduces plan liabilities and, therefore, required funding.)

Every quarter, I prepare a recap of developments in the benefits and compensation areas for Institutional Investment Consulting.  Although many of the items have been reported in previous blog entries, I do a deeper dive for the IIC report.  Below is a copy of the most recent report, covering April through June. 

Most "claim allowed" or "claim denied" cases aren't blog-worthy, but a case just decided in the Sixth Circuit is worthy of our time, because it shows how a court can get past the Firestone deferential standard of review when it wants to hold for participants, despite an administrator's conclusion that the plan's language didn't support a recovery.

The case, Adams v. Anheuser-Busch, dealt with claims by Anheuser-Busch (A-B) pension participants that they were entitled to the pension plan's "5+5" benefit (extra years of service and age) because their "employment with [an A-B Company was] involuntarily terminated" (the plan's trigger for the 5+5 benefit) when the subsidiary that they were employed by was acquired by Ball Corporation and they became employees of Ball.  The court reasoned that the sale was an involuntary termination from the A-B controlled group, even though the terms of the transaction provided that the participants would continue to be employed.

The discussion here isn't whether the court's reasoning makes sense.  We've all seen enough plan language and transaction contexts to understand how the court could reach that conclusion.  But, I want us to focus on the fact that the administrator had construed the plan language otherwise (i.e., it concluded that the plan's reference to an "involuntary termination" didn't cover a transaction-related severance from the controlled group if the participants continued to work in exactly the same jobs after the transaction) and the court concluded that it did not have to give any deference to that construction because, in the court's view, the plan language was unambiguous.  The court's bottom line can be characterized (if I want to be cynical) as "it's clear to me, so, if you disagree, you are arbitrary and capricious."

If this were a law review article, I'd get into some detail about the court's legal analysis (the cases it relied on don't stand as clearly as the court suggests for this bold of a departure from an administrator's conclusion).  But, I'm trying to be practical here, so, I think it's more important to figure out whether there's a strategy that will help prevent a court from deciding that plan language is unambiguous and no deference is due.

As with all fiduciary matters, the best answers involve process and documentation.  A claims fiduciary needs to make a record of (1) the possible constructions of a plan provision ('we conclude that the language may mean a, b or c"), (2) the pros and cons of each (remember, here, that the claims regulations require that a decision on the initial claim describe the information that a participant needs to provide for reversal on appeal--make sure to put the participant to that task) and (3) the specific conclusion that it is reaching and the basis for that decision.  This level of detail doesn't ensure that a court won't say "there's only one meaning here and if you conclude otherwise, you're wrong," but it should make that course harder, mostly because it's hard to say something is unambiguous if there's a lot of disagreement about what it means.

And, don't forget the basics.  Plan language should be as strong as it can be in granting discretion to the claims fiduciary.  And, if your plan outsources any of the claims process, make sure that plan counsel has signed off on the processes and notices used by the vendor.  Failures at that level could make the discussion of de novo or deferential standards of review moot.

The week before The 4th was the Supreme Court's last week and I posted several times about the big decisions issued as the Court ended its session.  Then, radio silence.

A lot of what has happened in the interim didn't seem to have enough "wow" to follow the most recent entries.  While Fidelity settled fiduciary litigation against it for $12 million, the immediate impact would appear to be important only for plan sponsors that include proprietary funds in their plans--which doesn't cover many companies.  And, the Senate's imminent launch of a bill that would overturn Hobby Lobby is newsworthy, but it doesn't seem very likely that the House and Senate will agree on very much about ACA (particularly as the House prepares to sue President Obama for extending the ACA deadlines), so I wouldn't expect anything to get through Congress [updated July 17--the proposal didn't even get through the Senate].

But, there are a few items that are important enough to be covered in detail:

• The IRS finalized the Qualified Longevity Annuity Contract Rules, which will permit very extended annuity payment terms in defined contribution plans.
• A Sixth Circuit decision against Anheuser-Busch can be read as applying more of a de novo standard of review than we'd otherwise expect to a matter of plan construction.
• Another court ruling has come down in one of the "church plan" cases, signaling that a large number of those plans could lead to unexpected liability, despite the IRS's consistently ruling that they were church plans (and, therefore, not subject to ERISA rules that, apparently, did apply).

I'll post three separate articles on these developments in the next couple of days.

I've reported previously about participants coming out of the woodwork with claims that they had not been paid benefits owed to them and plans having a difficult time proving that the participants had been paid (the claimants worked decades ago and records have been lost, or destroyed pursuant to record destruction policies).  During a recent speech, I asked for a show of hands and saw that an overwhelming majority of plan sponsors in attendance had encountered claims of this type.  (I know from other conversations that the Social Security Administration is causing these claims by notifying former employees that they "may have" or "probably have" benefits from the companies.)

This week, the Sixth Circuit, in an unpublished opinion, held that a claim of this type is barred as untimely because of the statute of limitations.  In that case, Watkins v. JP Morgan Chase U.S. Benefits Executive, the participant had asked for a distribution in 1998, but didn't ask where the check was until 2006 (there was evidence that the check had been issued but, in analyzing the statute of limitations issue, the court treated the check as not having been sent).

The court reasoned that, in the year that the distribution was requested, the participant needed to treat the failure to issue a check as a "clear repudiation" of her claim.  Thus, the statute began to run then and had run out by the time the participant followed up.

I have been waiting for reported cases to begin in this area and am happy to see the first one that I'm aware of back the employer.  Due to the volume of claims like these, this is probably just the beginning of courts' trying to resolve some tricky issues.

A class action filed earlier in the month accuses Great-West of breaching fiduciary duties by setting a crediting rate in Guaranteed Investment Annuity Contracts and thereby establishing its compensation from the investments of plan assets (because it kept the spread between what it made on the investments and the crediting rate).

The courts have been active but inconsistent in this area.  Most recently, a court in Massachusetts concluded that MassMutual was a fiduciary because it had the ability to set its own compensation, but last year, two other courts found that American United Life Insurance and John Hancock Life Insurance were not fiduciaries.  (The facts and issues in each case differ, but the same general question--"when is a third party that is providing administration and investment products to a plan a fiduciary?"--is a common thread.)

We're reporting on the case because, if more courts find that the vendors are fiduciaries, in-house fiduciaries will need to be more active in the contract terms that are required from the vendors (and will need to monitor their activities accordingly).  In-house fiduciaries will also need to consider how ERISA's co-fiduciary liability provisions would apply to the arrangement.

Plans don't always get it right and many courts have been struggling to identify the circumstances under which a plan can sue to get back money that shouldn't have been paid to (or shouldn't be kept by) a participant.  This comes up in retirement plans when an administrator initially makes a calculation error and in health and welfare plans when a plan has reimbursement rights after the participant recovers from a third party (like the person who caused the auto accident that led to the participant's medical care or disability benefits).

The technical side of this is that ERISA only provides limited remedies and the plan's claim has to be "equitable," which means that certain somewhat archaic requirements apply to the claim.  One of the requirements that some courts apply is the "tracing doctrine."  Under that doctrine, the plan only recovers if it can trace the money it paid to a specific pool of assets still held by the participant.

In Thurber v. Aetna, a Circuit Court of Appeals in the Second Circuit (that's in part of the northeast) refused to apply the tracing doctrine strictly and held that Aetna could recover monies from a participant even though the benefits it paid hadn't been set aside by the participant.  The court reasoned that, although equitable principles required that a specific fund be identified, the plan document in the case identified that fund as the "overpayments" and the participant was on notice of that fact.

The Supreme Court just refused to take the appeal in Thurber, leaving the Circuits split on the question of whether a plan has to trace to the specific assets that it paid.  For now, the three Circuits in the far northeast part of the country do not require tracing, while the other Circuits that have considered the question do.

Although the Court's denial of cert. doesn't reflect the Court's view on the question (it can just mean that the Court didn't think this was the best vehicle to resolve the question), a review of the back story may help plan sponsors mitigate risks in the area.  When the Court was considering granting cert., it asked the Solicitor General to weigh in.  The Solicitor General argued against granting cert.  Even though it supported applying the tracing doctrine, the Solicitor General thought that Thurber was not the case to take because of case-specific issues related to the plan language involved in the dispute.

The language in Thurber helped the Second Circuit decide that the participant understood that it held the overpayments subject to the plan's claim.  Plan sponsors should look at the language involved in the case and, if necessary, beef up retirement and health and welfare plan language to give its plans the best opportunity to recover overpayments from plan participants.