ERIC Legal Developments in Employee Benefits

1. ERIC Legal Developments in Employee Benefits March 21, 2018

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5. Presenters: Morgan Lewis John Ferreira, Partner Christopher Weals, Senior Counsel Driven By and For Large Employers

6. RETIREE MEDICAL LITIGATION • We have reached a post-Tackett watershed • Tackett: Supreme Court threw out the Yard-Man presumption and said that ordinary principles of contract interpretation should apply • 9-0 decision, but Ginsburg’s concurrence, joined by three other Justices, muddied the water a bit, suggesting that various aspects of a CBA could be deemed to create “ambiguity,” requiring resort to extrinsic evidence (which always favors retirees) • One such aspect: CBA language suggesting that a retiree benefit would last longer than the duration of the CBA (“will continue for life” or “will continue until age 65” or tying retiree medical eligibility to pension eligibility)

7. RETIREE MEDICAL LITIGATION • Post-Tackett, different Sixth Circuit panels struggled with how to apply it and how far from Yard-Man it pushed the applicable law; a number of them seemed to cling to Yard-Man by finding ambiguity • Now, Supreme Court has stepped back in and made clear that Yard-Man is dead and buried, and in doing so, has created very favorable precedent for employers in all Circuits seeking to terminate or change benefits for formerly represented retirees • CNH Industrial N.V. v. Reese, 138 S. Ct. 761 (2018): Court (9-0) summarily reversed a Sixth Circuit decision that held that a CBA was ambiguous, based largely on language tying eligibility to pension eligibility; Court held that CBA’s durational clause applied and that factors such as tying medical benefits to pension eligibility could not be used to create ambiguity

8. RETIREE MEDICAL LITIGATION • On February 26, 2018, the Supreme Court summarily reversed and remanded another Sixth Circuit decision, UAW v.Kelsey-Hayes, 854 F.3d 862 (6th Cir. 2017), for reconsideration in light of CNH. The Sixth Circuit panel in that case had determined that a CBA that had language saying that retiree benefits would “continue” was ambiguous. • Two weeks ago, a Sixth Circuit panel in Cooper v. Honeywell International, Inc., 2018 WL 1190385 (6th Cir. Mar. 8, 2018), applying the analysis from CNH, held that language in the CBA that retiree coverage would continue until age 65 did not create ambiguity; it applied the CBA’s general durational clause to bar the retirees’ claim.

9. RETIREE MEDICAL LITIGATION • Bottom line: As was the case with stock-drop litigation, it took two tries by the Supreme Court to truly bury Yard-Man, but it’s now most sincerely dead. • In fact, it would now appear that in every federal court throughout the land, collectively bargained retirees likely cannot win a challenge to changes in or termination of their medical coverage unless they can point to a CBA provision or related agreement that says that their benefits last for life notwithstanding the expiration of the agreement. We will see what happens in Kelsey-Hayes and other cases, but that seems to be where we are headed.

10. DOL FIDUCIARY RULE • Speaking of dead rules: The Fifth Circuit, in 2-1 decision, threw out the DOL’s Fiduciary Rule in its entirety. Chamber of Commerce of the U.S.A., et al. v. U.S. Dep’t of Labor, et al., No. 17-10238, slip op. 46 (5th Cir. Mar. 15, 2018). • The court held that the Rule’s adoption was arbitrary, capricious, and unlawful under the Administrative Procedure Act (“APA”), and it vacated it “in toto.” This includes the Rule’s basic expansion of the definition of “fiduciary” to include giving advice to plan participants or plan fiduciaries on how to invest their money or what to do with it when they leave the company in most cases, as well as the more complex compliance requirements and related exemptions. • The Tenth Circuit had ruled five days earlier that certain aspects of the Rule were OK, but that was a narrower challenge; court arguably didn’t rule on validity of the entire Rule.

11. DOL FIDUCIARY RULE • Counsel for the challengers has opined that because of the broad nature of the Fifth Circuit’s ruling, there is no Circuit split, and therefore no basis for Supreme Court review. • DOL is considering what to do next. • Could ask for rehearing by Fifth Circuit en banc (unlikely to succeed) or petition for cert (see above). • Could decide not to challenge at all and just let the law return to its pre-Rule state; there certainly are officials in the Administration who are not fans of the Rule (though why did they press forward with its defense in these cases?) • Could use as a clean slate opportunity to start over from scratch, or defer to SEC

12. DOL FIDUCIARY RULE • If DOL doesn’t challenge, and the Rule goes the way of Section 89 of the Code (age check!), how does this affect large plan sponsors? • Rule already only had limited effect on sponsors, so not much impact. • Would revert to regime under which 401(k) service providers could have “discussions” with plan participants about how to invest or whether to roll over without being deemed fiduciaries; however, some providers have already crossed over to fiduciary land and may well decide to remain there, in order to reassure sponsors or gain a competitive advantage (need to include in agreement) • Could conceivably reverse the trend of participants being more likely to leave their money in the plan, rather than roll it over, since brokers are now free to advise them to roll over without fear of fiduciary liability – but, again, market has shifted, as has awareness of the issue

13. BENEFIT CLAIMS – STANDARD OF REVIEW • Fifth Circuit abandons “two-tiered” approach to standard of review where discretionary authority is not delegated to plan administrator. Ariana v. Humana Health Plan of Tex., 2018 WL 1096980 (5th Cir. Mar. 1, 2018). Court had reviewed legal interpretation of plan under de novo standard, but applied abuse of discretion standard to factual determinations. Fifth Circuit was the outlier. In Ariana, the court overturned its prior precedent and held that de novo is the default standard of review in the absence of delegated discretion, joining all the other circuits.

14. BENEFIT CLAIMS – STANDARD OF REVIEW • Courts continue to grapple with how a plan administrator’s failure to follow the claims procedure affects the standard of review. • Background: In Halo v. Yale Health Plan, 819 F.3d 42 (2d Cir. 2016), the Second Circuit held that when a plan administrator exercising discretionary authority fails to comply the DOL’s claims procedure regulations, the participant is entitled to de novo review. • Recent decision by S.D. Fla. shows how delay in processing claim may result in loss of abuse of discretion standard. Johnston v. Aetna Life Ins., 2018 U.S. Dist. LEXIS 34622 (S.D. Fla. March 1, 2018). Aetna received appeal of adverse LTD claim determination in July, but did not begin reviewing appeal until November. By March, still no decision, so claimant sued. Court held that given Aetna’s unnecessary delays, which were largely its own fault, the de novo standard of review applied.

15. BENEFIT CLAIMS – STANDARD OF REVIEW • Seventh Circuit confronted similar issue in Dragus v. Reliance Standard Life Ins., 882 F.3d 667 (7th Cir. 2018). Reliance missed the deadline for claim denial. Plaintiff sued, claiming the procedural foot fault meant Reliance forfeited the deferential standard of review. • Under regulations, if plan administrator adhere to the required time limits for adjudicating claims, the claimant is deemed to have exhausted administrative remedies. Here, instead of abandoning the claims process, the claimant sought reconsideration from Reliance. • Court held that the claimant should have sued after the untimely denial and waived his argument as to the de novo standard by continuing with the appeal process.

16. BURDEN OF PROOF IN BREACH OF FIDUCIARY DUTY CASES • Supreme Court recently asked the Solicitor General to weigh in on a cert. petition presenting the question of whether the plaintiff in a breach of fiduciary duty case bears the burden of proving loss causation under ERISA § 409(a). The Pioneer Centres Holding Co. ESOP v. Alerus Financial, N.A., No. 17-667 (cert. filed Nov. 2, 2017). • Cert. petition claims there is a clear circuit split: • Sixth, Ninth, Tenth, and Eleventh Circuits hold that the plaintiff always bears the burden of proving loss causation. • Second, Fourth, Fifth, and Eighth Circuits hold that once a participant establishes a breach of fiduciary duty and loss to the plan, the burden shifts to the fiduciary to disprove loss causation. Most recent is Tatum v. RJR Pension Inv. Comm., 761 F.2d 346 (4th Cir. 2014). Driven By and For Large Employers

17. BURDEN OF PROOF IN BREACH OF FIDUCIARY DUTY CASES • In Pioneer, alleged breach involved an ESOP trustee’s decision not to accept the seller’s “best of knowledge” warranties. Deal didn’t go through, company later sold for $10M more. ESOP sued, claiming breach and seeking damages for lost opportunity. • District court found insufficient evidence that deal would have gone through absent breach, and Tenth Circuit affirmed. Held that the plaintiff retained the burden of proof. • Supreme Court’s invitation to SG signals possible interest in the case. • Could have a big impact on cases currently being litigated. Plaintiffs will be less likely to survive summary judgment if they have to present admissible evidence of loss causation. Among other things, affects strategy for expert reports – who much come forward with proof of loss causation? Driven By and For Large Employers

18. SEQUOIA FUND LITIGATION • Several class action lawsuits arising out of the Sequoia Fund, which held a large stake in Valeant Pharmaceuticals. When Valeant stock tanked, Sequoia Fund lost a quarter of its value. • In Muri v. National Indemnity, 2018 WL 1054326 (D. Neb. Feb. 26, 2018), court denied employer’s motion to dismiss. National Indemnity had made the Sequoia Fund its default option, according to the complaint. Court rejected the argument that National Indemnity couldn’t be held liable for one poorly performing investment, when it offered other, safer investments. Complaint sufficiently alleged “red flags” about Sequoia Fund’s prudence. • But, just last Friday, in Harmon v. FMC Corp., No. 16-6073, slip op. (E.D. Pa. Mar. 16, 2018), the court granted FMC’s motion to dismiss a similar complaint for failure to state a claim. Rejected argument that FMC failed to follow plan document. Also held that ERISA allows plans to contain undiversified investment options. Finally, there was insufficient evidence of an imprudent process. Driven By and For Large Employers

19. ERIC’s Spring Policy Conference: April 11-12 NEW SPEAKERS ANNOUNCED • Preston Rutledge, Assistant Secretary of Labor for the Employee Benefits Security Administration (EBSA) • Tom Reeder, Director of the Pension Benefit Guaranty Corporation (PBGC) • U.S.Senator Bill Cassidy (R-LA) • Stu Rothenberg, Political Analyst • Key congressional staff, leaders from the Administration, including from the President’s Council of Economic Advisors REGISTRATION NOW OPEN Driven By and For Large Employers

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