American Benefits Council
Benefits Byte


January 26, 2015

The Benefits Byte is the American Benefits Council’s regular e-mail and online newsletter for members only, providing timely reports on legislative, regulatory and judicial developments, along with updates on the Council’s activities in support of employer-sponsored benefit plans.

The Benefits Byte is published by the American Benefits Council, based on staff reports and edited by Jason Hammersla, Council director of communications. Contact information for Council staff related to specific topics can be found at the end of each story.

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Council Amicus Brief in Tibble v. Edison Emphasizes Importance of Statute of Limitations

The American Benefits Council, in an amicus (“friend of the court”) brief filed with the U.S. Supreme Court on January 26, urged the justices to dismiss the underlying lawsuit in Tibble v. Edison on the grounds that the statute of limitations had expired. The brief was filed in conjunction with the National Association of Manufacturers, the U.S. Chamber of Commerce, the ERISA Industry Committee and the Business Roundtable.

The high court is expected to hear arguments in this case on February 24, with its judgment limited to the following question: “Whether a claim that ERISA plan fiduciaries breached their duty of prudence by offering higher-cost retail-class mutual funds to plan participants, even though identical lower-cost institution-class mutual funds were available, is barred by [ERISA’s 6-year statute of limitations] when fiduciaries initially chose the higher-cost mutual funds as plan investments more than six years before the claim was filed.”

The initial lawsuit involved the plaintiffs’ claim that the retirement plan fiduciary breached its fiduciary duty by choosing retail-class funds for the plan's investment menu. As we reported in the July 29, 2010, Benefits Byte, while the U.S. District Court for the Central District of California initially ruled for the plaintiff in Tibble v. Edison International on the fiduciary duty question.

However, the district court – later affirmed by the Ninth Circuit U.S. Court of Appeals – held that ERISA’s statute of limitations barred the plaintiffs’ claim because the retirement plan fiduciaries had selected the funds more than six years before the filing of the complaint. The plaintiffs have appealed to the Supreme Court arguing that the decision to offer the fund could have been reconsidered during the six-year window, making it a “continuing violation.” The U.S. Department of Labor (DOL) submitted an amicus brief in support of the plaintiffs, asserting that “ERISA fiduciaries have an ongoing duty to review plan investments and divest investments that are imprudent.”

The Council’s amicus brief describes how the “continuing violation” theory would subject fiduciaries to perpetual exposure to litigation and potential liability for investment selection and other acts completed long before suit was actually filed. If accepted by the court, it would upset the careful balance between protecting beneficiaries and preserving benefit plans that is central to ERISA. The brief further explains:

  • One of ERISA’s primary goals is to reduce the regulatory burden and the volume of potential litigation faced by ERISA plan sponsors and fiduciaries in order to encourage employers to offer employee benefit plans.
  • Petitioners and the DOL conflate two different aspects of fiduciary decision-making – the initial selection of investment options and the ongoing monitoring of investment performance – in an unprecedented effort to encumber plan fiduciaries with a constant duty to reevaluate the entirety of a portfolio on some unstated periodic basis.
  • In supporting the plaintiffs’ position, the DOL is attempting to engage in regulation via amicus brief. “By joining in petitioners’ broadside attack on retail-class mutual fund shares, the DOL is effectively saying that these are imprudent options for 401(k) plans, without having made any regulatory pronouncement to that effect,” the brief said.

For more information on retirement plan legal issues, contact Jan Jacobson, senior counsel, retirement policy, at (202) 289-6700.

Supreme Court Invalidates Special Inference of Retiree Health Benefit Vesting

On January 26, the U.S. Supreme Court ruled unanimously against a special inference that retiree health care benefits are “vested for life” and should continue indefinitely in the absence of specific language to the contrary in a plan document or collective bargaining agreement.

The ruling of M&G Polymers USA, LLC v. Tackett invalidated what is known as the “Yard-Man inference,” a judicial inference previously applied by the U.S. Court of Appeals for the Sixth Circuit (and named after the first such case) to find that retiree health care benefits are vested for life if the plan document or collective bargaining agreement does not have specific language to the contrary.

The unanimous Supreme Court opinion by Justice Clarence Thomas ruled that courts should first “review the agreements under ordinary principles of contract law” in determining whether union retirees have vested lifetime health care benefits, rather than special inferences or presumptions. Justice Ruth Bader Ginsburg filed a concurring opinion but also noted that “when the contract is ambiguous, a court may consider extrinsic evidence to determine the intentions of the parties,” including the parties' bargaining history.

In 2013, the U.S. Sixth Circuit Court of Appeals upheld a permanent injunction ordering that retirees be reinstated in the M&G Polymers health plan. The Sixth Circuit affirmed that the "retirees had [the] vested right to no-cost health care" under the prevailing collective bargaining agreement (CBA) and "certain side agreements between union and various employers that purported to limit retiree health care coverage did not apply to [the] plant that employed retirees." In this and similar cases, the Sixth Circuit applied the Yard-Man inference that union retiree benefits are intended to be vested in the absence of specific plan or bargaining agreement language to the contrary. Other appeals courts, including the Second, Third and Seventh Circuits, had ruled that retiree health benefits are not vested without specific durational language.

M&G Polymers petitioned the Supreme Court for review of the appellate court decision, and the court granted review in May 2014 (see the May 6, 2014 Benefits Byte).

The Council submitted an amicus (friend of the court) brief (with the U.S. Chamber of Commerce and the National Association of Manufacturers) in support of an employer in a similar Sixth Circuit case, El Paso Tennessee Pipeline Co, v. Gladys Yolton, et al., in which the Council asked the Supreme Court to resolve a conflict in federal appeals court decisions regarding the proper legal standard for determining the duration of retiree health benefits (see the October 12, 2006 Benefits Byte).

For more information, contact Kathryn Wilber, senior counsel, health policy, at (202) 289-6700.

The American Benefits Council is the national trade association for companies concerned about federal legislation and regulations affecting all aspects of the employee benefits system. The Council's members represent the entire spectrum of the private employee benefits community and either sponsor directly or administer retirement and health plans covering more than 100 million Americans.

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