The Employee Retirement Income Security Act of 1974, as amended (ERISA), is a federal law that sets minimum standards for most voluntarily established retirement and health plans in private industry. The primary purpose of ERISA is to protect the individuals who participate in these plans.
From the circuit courts to the Supreme Court, there was no shortage of cases involving employee health plans in 2021. For example, the U.S. Supreme Court rejected a challenge to the Affordable Care Act, while the Ninth Circuit backed California’s auto-IRA program, giving states a better ability to boost employees’ retirement savings. Continued from our last post, here are three more meaningful benefits rulings from 2021.
Seventh Circuit Addresses ERISA Arbitration Provision
Smith v. Board of Directors of Triad Manufacturing Inc.
In September 2021, the Seventh Circuit ruled to strike down an arbitration provision contained in an employee stock ownership plan, providing new guidance on when workers may be required to resolve claims out of court through arbitration.
In Smith v. Board of Directors of Triad Manufacturing Inc., a three-judge panel ruled that an employee stock ownership plan’s arbitration provision was unenforceable because it limited the relief available to individual claimants in arbitration. Smith is one of several recent cases in which workers attempt to invalidate arbitration requirements in order to bring a class action alleging violations of ERISA which stem from the sale of company stock to the plan by directors at an inflated, exorbitant price.
The ruling states that while appeals courts have ruled that ERISA suits generally may be sent to arbitration, the provision in Triad’s agreement was invalid based on the “effective vindication” doctrine. Under the “effective vindication” doctrine, arbitration agreements cannot exclude certain statutory claims from prosecution. Because the arbitration language prevented plan participants from using ERISA as a basis to seek relief and obtain remedies, it was invalid. The ruling cited an exception to the Federal Arbitration Act that allows courts to overrule an arbitration agreement if it prevents a party from bringing claims under federal law.
Although the ruling found that the particular arbitration provision was unenforceable, to the court’s initial ruling broadly approved the arbitration of ERISA claims. All the back and forth is the result of the validity of arbitration provisions becoming a major issue in the Ninth Circuit after a 2019 decision. That ruling struck down decades of case law that said fiduciary breach lawsuits could not be arbitrated under ERISA, resulting in many companies writing new arbitration language into their retirement and health plans.
Second Circuit Revives Retirement Class Action against NYU
*Sacerdote et al. v. New York University, case number 18-2707, in the U.S. Court of Appeals for the Second Circuit.
In August 2021, the Second Circuit overturned a district court’s dismissal in Sacerdote v. New York University. NYU employees filed a lawsuit claiming that NYU overburdened their retirement funds with investments and fees that were unreasonably expensive. The Second Circuit’s ruling shows how such claims may overcome a motion to dismiss.
A three-judge panel ruled 2-1 in favor of the employees who argued that a lower court wrongly dismissed their adequately pleaded claims. These allegations included claims that NYU offered retail-class shares of mutual funds instead of institutional-class shares, breaching its fiduciary duty under ERISA.
Still, “the relevance of that case is dwarfed by the impending Northwestern decision,” said Oringer, referring to a similar claim now under consideration by the U.S. Supreme Court, which heard oral arguments in a class-action against Northwestern University on December 6. The $358 million class action was the first of almost two dozen ERISA cases against universities’ retirement plans to go to trial.
Parties agreed to a stay in the NYU case until the Supreme Court rules on both the Northwestern case and on a petition for writ of certiorari that NYU filed in November.
Second Circuit Extends Thole to Health Care
*Ynes Gonzalez de Fuente et al. v. Preferred Home Care of New York LLC et al., case number 20-3985, in the U.S. Court of Appeals for the Second Circuit.
The Second Circuit made a ruling in June 2021 to uphold the dismissal of a class action filed by home health aides over a health plan that was overfunded by $23 million. The Gonzalez case was one of the numerous challenges to health care programs in 2021 that was sunk because of lack of standing in the aftermath of the Supreme Court’s 2020 ruling in Thole v. U.S. Bank et al., which raised the bar for plaintiffs to overcome a motion to dismiss in ERISA cases.
The Gonzalez ruling demonstrated how lower courts interpret the Thole precedent to apply to other types of employee benefits, including health care. On appeal, the home health aides argued that ERISA made their health care benefits more like a defined contribution plan than a defined benefit plan. The Second Circuit panel disagreed and said plaintiffs lacked standing because the case’s outcome would not affect the home health aides’ ability to access benefits under their retirement plan.
HBL has experience in all areas of benefits and employment law, offering a comprehensive solution to all your business benefits and HR/employment needs. We help ensure you are in compliance with the complex requirements of ERISA and the IRS code, as well as those laws that impact you and your employees. Together, we reduce your exposure to potential legal or financial penalties. Learn more by calling 470-571-1007.
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