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This firm’s October 2007 Labor and Employment Law Update (“It’s Open Season on ERISA Fiduciaries! Are you an Unsuspecting Target?”) warned of the potential liability of an ERISA fiduciary, which includes personal liability for an individual fiduciary. On February 20, 2008, the U.S. Supreme Court in LaRue v. DeWollf, Boberg & Associates confirmed the breadth of this potential liability under defined contribution retirement plans, such as 401(k) plans, 403(b) plans, employee stock ownership plans (ESOPs) and profit sharing plans.

Under a defined contribution plan, an employee elects to defer and invest a part of his salary for retirement. The contribution amount is fixed, but the retirement benefit is not. The amount of a retirement benefit is influenced by such factors as employee income, administrative expenses and investment gains and losses.

The dominance of defined contribution plans as the retirement plan of choice for employers is undeniable. Today, 50 million U.S. workers have $2.7 trillion dollars invested in 401(k) plans alone.

CLASS-WIDE RELIEF: Historically, fiduciary liability suits by participants in defined contribution retirement plans generally sought only class-wide relief. Typical class actions included:

EMPLOYER STOCK DROP: After a drop in the value of an employer’s stock, suit is brought by a class of participants in (1) an ESOP plan, or (2) a 401(k) plan which includes employer stock as an investment option.

FEES AND EXPENSES: A class of participants in a 401(k) plan sues a fiduciary for allegedly (1) failing to disclose fees and expenses associated with certain investment options, or (2) unreasonable administrative fees and expenses.

IMPRUDENT SELECTION: A class of plan participants in a 401(k) plan sues a fiduciary for allegedly not acting prudently when selecting investments, products and services for the plan.

INDIVIDUAL RELIEF: Recently, fiduciary liability suits have been filed by participants in defined contribution retirement plans seeking only individual relief. Typical individual actions include:

MISMANAGEMENT OF INDIVIDUAL ACCOUNT: A fiduciary is alleged to have impaired the participant’s individual account by allegedly (1) failing to follow investment directions, or (2) offering imprudent investment options.

CLASS CLAIMS: Many of the claims which were previously made in suits seeking class-wide relief, such as stock drop and excessive fees, are now being made in individual suits.

NEW QUESTIONS: Fiduciary liability suits by participants in defined contribution plans seeking only individual relief created new questions for the courts, not the least of which was whether such suits could even be brought. Inconsistent answers to these questions brought them before the U.S. Supreme Court in LaRue, a suit by a former participant in a 401(k) plan who sought individual relief in the amount of $150,000 for the alleged mismanagement by a plan fiduciary of his individual account.

CAN A FIDUCIARY BE SUED FOR ALLEGED MISCONDUCT WHICH IMPAIRED THE VALUE OF A SINGLE PARTICIPANT’S INDIVIDUAL ACCOUNT?

Yes, but only to the extent the participant seeks to be made whole under the plan for losses resulting from the alleged fiduciary misconduct; other relief, such as consequential damages, is not recoverable. In reaching this conclusion, the Court rejected the argument, which had been accepted by the lower courts, that such liability would discourage employers from adopting defined contribution plans.

CAN A FIDUCIARY BE SUED BY A FORMER PLAN PARTICIPANT?

Yes. As long as the claim relates to benefits under a plan, the claim may be brought by a former participant who has cashed out his defined contribution plan.

IS A SUIT ALLEGING IMPAIRED VALUE OF PLAN ASSETS IN AN INDIVIDUAL ACCOUNT A BENEFITS CLAIM OR FIDUCIARY LIABILITY CLAIM?

The Court seemingly answered that such a suit is a fiduciary liability claim, but a concurring opinion by Justices Roberts and Kennedy left open the possibility that this question could be revisited by the Court. If the suit is a fiduciary liability claim, this means that (1) a participant generally need not exhaust plan remedies before filing suit, and (2) the fiduciary, not the plan, is personally responsible for the loss in the participant’s individual account.

PRACTICAL IMPACT: The Supreme Court’s confirmation that fiduciary liability suits can seek individual relief opens the door for suits:

by law firms who are ill equipped to prosecute class actions;
regarding smaller plans as to which a class action may not be feasible;
by former plan participants, possibly in conjunction with other employment-related claims; and
with respect to claims which may be unique to one, but not all, current plan participants.

MINIMIZATION OF LIABILITY: As set forth in the October 2007 Labor and Employment Law Update, education which dispels the myths and urban legends subscribed to by fiduciaries is the first step to minimizing the risks associated with ERISA fiduciary liability. Second and third steps can include procedural tools, such as written policies, regular meetings and oversight protocols, and risk management tools, such as indemnification agreements and ERISA fiduciary liability insurance.

Labor And Employment Law Update, February 2008 | Download PDF Version

Effective Immediately: New FMLA Leave Entitlements For Military Families!

With little advance warning to employers, President Bush signed into law on January 28, 2008 amendments to the Family & Medical Leave Act ("FMLA") for family members of military personnel. The amendments are part of the broader National Defense Authorization Act.

The amendments effect two significant changes to the FMLA. Effective immediately is a new type of FMLA leave known as "Service Member Family Leave." A new ground for FMLA leave for military exigencies will become effective once the U.S. Department of Labor issues interpretive regulations.

Time will ultimately reveal the full impact of the two changes upon employers covered by the FMLA, i.e., those with 50 or more employees. With nearly 3 million active and reserve service members, and ongoing wars in Iraq and Afghanistan, the impact will likely be significant and immediate.

SERVICE MEMBER FAMILY LEAVE

Employers covered by the FMLA must provide an eligible "spouse, son, daughter, or next of kin" with up to 26 workweeks (or 6 months) of leave during a 12-month period to care for a

"member of the Armed Forces, including a member of the National Guard or Reserves, who is undergoing medical treatment, recuperation, or therapy, is otherwise in outpatient status, or is otherwise on the temporary disability retired list, for a serious injury or illness."

The term "outpatient status" means "the status of a member of the Armed Force assigned (a) a military medical treatment facility as an outpatient; or (b) a unit established for the purpose of providing command and control of members of the Armed Forces receiving medical care as outpatients."

WHAT HAS CHANGED? Previously, only 12 weeks of FMLA leave were available to an eligible employee to care for a spouse, son, daughter or parent with a serious health condition. For the care of a service member, the amendments now allow:

a total of 26 weeks of leave, which may combine Service Member Family Leave with other types of FMLA leave; and
leave by an employee who is merely the service member's "next of kin", which is defined as "the nearest blood relative."

WHAT IS A “QUALIFYING EXIGENCY”? The term is not defined by the amendments. The task of defining the term has been left to the U.S. Department of Labor. Since the agency cannot adopt regulations without an opportunity for notice and comment by the public, it may be quite some time before a definition of “qualifying exigency” is available to covered employers.

IMMEDIATE ACTION REQUIRED

At least three steps must be taken by covered employers immediately to comply with the new FMLA amendments:

Employers must be prepared to review requests for Service Member Family Leave.
Employers must adopt policies and procedures for dealing with potentially lengthy Service Member Family Leaves which address such issues as maintenance of health benefits and job restoration. It is recommended that these policies and procedures be reviewed by legal counsel before implementation.
Employers must inform their employees in manuals and other written materials of the availability and eligibility requirements for Service Member Family Leave.

WHAT IS A "SERIOUS INJURY OR ILLNESS?" The term is not limited to a combat-related injury or illness. Rather, the term broadly includes any injury or illness incurred "in line of duty on active duty in the Armed Forces that may render the member medically unfit to perform the duties of the member’s office, grade, rank, or rating."

IS INTERMITTENT SERVICE MEMBER FAMILY LEAVE AVAILABLE? Yes. The amendments specifically allow Service Family Member Leave to be taken intermittently or on a reduced leave schedule when medically necessary.

MILITARY EXIGENCY LEAVE

An eligible employee is entitled to a total of 12 workweeks of leave during any 12 month period for

"any qualifying exigency... arising out of the fact that the spouse or a son, daughter or parent of the employee is on active duty (or has been notified of an impending call or order to active duty ) in the Armed Forces in support of a contingency operation."

WHAT HAS CHANGED? Previously, employees were not eligible for FMLA leave under such circumstances.

WHAT IS A “QUALIFYING EXIGENCY”? The term is not defined by the amendments. The task of defining the term has been left to the U.S. Department of Labor. Since the agency cannot adopt regulations without an opportunity for notice and comment by the public, it may be quite some time before a definition of "qualifying exigency" is available to covered employers.

IMMEDIATE ACTION REQUIRED

At least three steps must be taken by covered employers immediately to comply with the new FMLA amendments:

Employers must be prepared to review requests for Service Member Family Leave.
Employers must adopt policies and procedures for dealing with potentially lengthy Service Member Family Leaves which address such issues as maintenance of health benefits and job restoration. It is recommended that these policies and procedures be reviewed by legal counsel before implementation.
Employers must inform their employees in manuals and other written materials of the availability and eligibility requirements for Service Member Family Leave.

ADDITIONAL QUESTIONS? If you have any questions regarding the FMLA, including the new amendments, or any other labor and employment law matter, please contact Robert G. Chadwick, Jr. at Campbell & Chadwick, P.C.

Labor and Employment Law Update is published periodically solely for the interests of friends and clients of Campbell & Chadwick, P.C. and is not intended to provide or be relied upon as legal advice in general or with respect to any particular factual scenario. Such legal advice should be obtained directly from retained legal counsel.

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"Thank you for keeping your article updated and for keeping it on your website. lbt" Linda Thomas - Chief Justice, Fifth District Court of Appeals

It’s Still Open Season On ERISA Fiduciaries And The Hunters Have A New Weapon!

Effective Immediately: New FMLA Leave Entitlements For Military Families!

"Thank you for keeping your article updated and for keeping it on your website. lbt"
Linda Thomas - Chief Justice, Fifth District Court of Appeals