Some court decisions get headlines, and some court decisions provide helpful guidelines. We hear much about multimillion dollar recoveries against retirement plans and their fiduciaries. We don’t hear so much about court decisions that outline ways to control plan liabilities and related fiduciary exposure. Consider two cases that could help your plan fiduciaries:
(1) The Supreme Court’s 2013 decisions in Heimeshoff v. Hartford Life & Accident Insurance Co.demonstrates the effectiveness of the most important provision that probably is not in your plan.Heimeshoff upheld the validity under ERISA of a plan provision which required any suit to recover plan benefits to be filed with a three (3) year period after a proof of loss is due under Wal-Mart’s insured disability plan. A Federal district court decision has since found claims for welfare benefits time-barred as a result of a plan provision imposing a two-year limit on filing lawsuits to recover plan benefits (the claimant was advised of the limitations period in the plan’s claim denial). So, even a valid benefit claim by a plan participant cannot be pursued in court after the expiration of a limitation period provided in the plan document if the period is reasonable in length and there is no controlling statute to the contrary.
For states like Illinois, which provides a “borrowed” ten (10) year statute of limitations for ERISA suits to collect benefits, the imposition of a two or three year limitation period through the plan document can provide considerable additional protection.
The bottom line is that there is no downside to this kind of provision. It should be in your 401(k) plan document and summary plan description, and it should be there now.
(2) A 2011 Seventh Circuit case, Howell v. Motorola, Inc., considers the effect of a release signed by an employee in exchange for an enhanced severance payment. The release complied with the Age Discrimination in Employment Act (ADEA) requirements for employees age 40 and over, and its terms applied to, among other things, any claim for pay, benefits or damages arising under federal law (including ERISA) but not “any claims for benefits under the Motorola employee benefit plan.” The case was a “stock drop” case in which the plaintiffs, as 401(k) plan participants, sought redress for a loss in value of Motorola stock in their 401(k) accounts. The Court’s opinion considered the release and found that it did apply to bar the claims made by the plaintiffs. The opinion went on to hold, in a case of first impression, that the release covered any claim other than a claim for the amount in Howell’s retirement account at the time he signed the release, and that “he cannot now claim that his account would have been even more had the defendant not breached a fiduciary duty.” So, a proper release can provide a defense to ERISA claims other than those that relate strictly to the current accrued benefit under a retirement plan. As in Howell, such a release could effectively bar any claim for monetary relief or additional benefits resulting from mistakes by plan fiduciaries. Consider including such a release with other benefit election forms that are presented to participants in pay status. This is another way the plan and its fiduciaries can be protected from the threat of protracted litigation.
Recommendations: Fiduciaries need to be concerned about expanded liabilities from the changing regulatory and judicial landscape (see HERE). Protective measures for fiduciaries include making sure that plan documents are clear and unambiguous and possibly obtaining fiduciary insurance, which is not to be confused with the required ERISA fidelity bond that does not protect fiduciaries. Employers, plan administrators, HR staff and plan service providers should also consider taking these proactive steps: (a) fiduciaries should meet regularly to discuss plan business and they should document their deliberations, (b) make sure your 401(k) plan provides a two or three year limitation period for participant benefit claims, and (c) include an enforceable participant release as part of the benefit distribution process. If you have any concerns about the prior conduct of plan fiduciaries, make sure you consult top notch plan service providers – and keep their advice confidential by dealing through independent legal counsel (see HERE).