Is your retirement plan set up to benefit you or your employer?þþSuch a question may seem out of place. After all, the Employee Retirement Income Security Act of 1974, known as Erisa, requires overseers of 401(k) plans and other benefit programs to ensure they are run safely, soundly and in participants’ best interests.þþBut class-action lawsuits against retirement plan sponsors in recent years have generated significant payouts, and legal experts say some employers are responding by modifying the terms of their plans. The goal? To help shield them from litigation.þþChanges that companies have made to their programs include reducing the amount of time a participant has to bring a legal action and requiring that such an action be brought in a court that is convenient to the plan sponsor but not necessarily to a beneficiary. This is known as forum selection.þþSuch requirements do more than make it harder for beneficiaries to receive the benefits they are owed, said Norman Stein, senior policy adviser at the Pension Rights Center, a nonprofit consumer organization in Washington. They also prevent participants from holding plan overseers accountable.þþ“It’s been a slowly growing problem from the perspective of participants,” Mr. Stein said in an interview. “If you have a plan and you want to do everything you can to immunize yourself against suits, you can take these measures.”þþþþþþSuch immunization is possible because of how Erisa was written and how courts interpret it, Mr. Stein explained.þþOn most of the work done by entities overseeing retirement or health benefit plans, the law imposes a fiduciary duty, requiring them to put participants’ interests first.þþBut some plan sponsor activities — creating and designing a plan, for example, or deciding to terminate one — are not governed by a fiduciary standard. These are known as “settlor” functions.þþPlan sponsors, therefore, wear two hats: one as a settlor; another as a fiduciary. And when a sponsor changes a plan’s terms — a settlor function — it may not be required to put its beneficiaries’ interests first.þþIn legal circles, this is known as the “settlor/fiduciary doctrine.” And federal courts have ruled in favor of plan sponsors who have changed the terms of their programs in ways that some lawyers say are inconsistent with the fiduciary standard.þþBenefit plans offered to employees of Kodak are an example. In its materials, Kodak outlines numerous procedures a participant must follow to bring a legal action against the plan. These include a requirement that all suits be filed in federal court near Kodak’s headquarters in Rochester, unless the plan administrator agrees to a different forum.þþLawsuits must also be filed within 90 days of a claim being denied, and if a litigant loses a case, he or she must pay all the Kodak plan’s fees and expenses incurred defending against the suit.þþAsked about these restrictions, Louise Kehoe, a Kodak spokeswoman, provided the following statement. “By giving employees a streamlined administrative process and directing any matters that cannot be resolved internally to the Federal District Court in Rochester, Kodak promotes consistent, affordable handling of any issues that arise. Likewise, in keeping with a widespread practice recently affirmed by the Supreme Court, Kodak has established and publicized clear deadlines for claimants with questions or concerns to take action, to ensure that matters can be resolved while records are available and memories are fresh.”þþþþþþLaw firms have also begun advising plan sponsors on how to protect themselves against lawsuits involving their benefit programs.þþ“When designing Erisa plans, limiting liability is an important priority,” stated a March 2015 report from Proskauer to its clients. “Fortunately, plan sponsors have certain tools at their disposal that can potentially reduce the risk of being sued, or being liable if a suit is brought.”þþAmong the tools described in the article are those employed by Kodak, including shortening the time a participant has to bring a suit and specifying the forum in which legal action can be brought.þþOfficials at the Labor Department, whose Employee Benefits Security Administration unit enforces benefit plan rules, say they are concerned about companies erecting barriers that make it harder for participants to receive what they are due. They call it a growing problem that hurts participants with limited financial resources, among them people who are already retired, on disability or in ill health.þþ“Health and retirement benefits are critically important to workers’ physical and financial well-being,” said Phyllis C. Borzi, assistant secretary of labor, in a statement. “When participants believe they have been wrongly denied benefits, they should have ready access to impartial judicial review. The best way to defend benefit decisions is to make sound decisions, not to stack the deck against employees’ day in court.”þþForum selection clauses like the one in the Kodak plan are among the Labor Department’s concerns. In “friend-of-the-court” briefs, the department has argued that these clauses are inconsistent with Erisa’s goal of removing obstacles for plan participants seeking their full benefits. The arguments have not always been successful, however.þþA further appeal of these litigation-protection measures is that companies face little downside when they add hurdles to their plans. Participants who must pay to bring legal challenges have much more to lose.þþJerome J. Schlichter, a partner at Schlichter Bogard & Denton in St. Louis, has scored numerous victories for beneficiaries in recent suits against retirement plan sponsors. Most of his cases involved breaches of fiduciary duties, such as offering only high-fee investment options in a plan.þþþþþþIn some of these suits, plan sponsors have argued that because such investment options were written into plan documents — a settlor function — they had no liability for choices that were not in the best interests of beneficiaries.þþMr. Schlichter has prevailed against these arguments. But the legal process is onerous for plan participants.þþ“I believe that these attempts to convert fiduciary conduct to settlor functions and obtain immunity from fiduciary breaches will be unsuccessful in courts,” Mr. Schlichter said in an interview. “But if companies do this, it creates more burdens on participants and more challenges for them to go about enforcing the law.”þþMr. Stein of the Pension Rights Center agreed. And he noted another risk to plan participants: a race to the bottom in benefit programs.þþ“There may be a relapse toward less than stellar behavior,” Mr. Stein said, “if employers think their plans are immunized against suits.”þ
Source: NY Times
