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Recovering Pension Overpayments May Get Even Harder

"Plan fiduciaries have become more aggressive in their attempts to recover mistaken overpayments to retirees. The plan may elect to recoup the overpayments by reducing future pension payments, but what if the participant received a lump sum or the recoupment method will not work, for example, because the retiree is elderly and the value of the future payments is not large, or because the payee wasn't really entitled to any vested pension? ... Recent actions by the U.S. Supreme Court may make it even more difficult to prevail in a lawsuit to recover pension overpayments."

Will Your Fiduciary Insurance Cover You When You Need It?

"Plaintiffs had three policies: a D&O policy, fiduciary liability insurance, and excess fiduciary coverage. They were sued by the DOL following a formal investigation for selling stock to an ESOP at an inflated price, but the court ruled that the policies didn't cover the plaintiffs for the following reasons: [1] The policies didn't cover actions taken before the effective date. [2] The D&O policy didn't cover ERISA claims at all. [3] Plaintiffs failed to give notice of the claims during the policy period, where the claim was specifically defined as including an investigation by the [DOL] or the [PBGC]. [4] The excess coverage didn't kick in until the policy limits in the basic policies had been reached[.]" [Bilyeu v. Nat. Union Fire Ins. Co. of Pittsburgh, No. 50,049-CA (La. Ct. App. Sept. 30, 2015)]

Suing to Recover Benefit Overpayments? It May Not Be So Easy

"As plan audits have uncovered more and more payment errors, many plans have acted as if no time limits or other restrictions applied to their repayment demands.... [P]lan fiduciaries can consider the following steps to improve their chances of prevailing in these suits: [1] Make sure that plans have specific provisions for recouping overpayments. [2] Give the payee the opportunity to argue that the payment is correct under ERISA's claims and appeals procedures.... [3] Do self-audits regularly and if a lawsuit seems necessary, file it promptly. [4] Pay attention when retirees call to question whether they are receiving the right payments." [Pharmacia Corp. Supp. Pension Plan v. Weldon, No. 4:14CV1498 (E.D. Mo. Aug. 24, 2015)]

Planning to Annuitize Current Retirees? Fifth Circuit Unambiguously Upholds Verizon's Right to De-Risk

"The court made the following rulings ... [1] The decision to annuitize was not a fiduciary act.... [2] The possibility of annuitization was not required to be disclosed in the [SPD].... [3] Participant consent was not required for annuitization of their benefits.... [4] Section 510 of ERISA ... was not violated merely because the plaintiffs did not have rights to continued plan participation, ERISA coverage or PBGC insurance.... [5] Paying $1 billion in fees and expenses as part of the $8.4 billion annuitization was not a fiduciary breach.... [6] It was not imprudent to purchase one group annuity contract from Prudential rather than from multiple insurers." [Lee v. Verizon Comm. Inc., No. 14-10553 (5th Cir. Aug. 17, 2015)]

No More Determination Letters? What's a Plan Sponsor to Do?

"The IRS should consider the following changes to preserve individually-designed plans: Modify its rule that a document defect found on audit goes automatically into the closing agreement program ... Modify its long-criticized rule that interim and discretionary amendments must be adopted by the end of the year in which they are effective or the plan sponsor's tax return deadline for that year.... Approve major modifications to a plan, such as conversion to another type of plan as if a new plan had been adopted at the effective date of the change.... Issue more model and sample language and add choices, similar to the way that adoption agreements can be used for different choices."

Five Ways the DOL Could Improve Its Fiduciary Proposal

"[1] Start by clarifying and narrowing the activities which result in fiduciary status.... [2] Provide a clear carve-out for the actuaries, lawyers and accountants who perform typical professional services in connection with investments.... [3] Provide a carve-out for sophisticated IRA investors similar to the carve-out for large plan investors with financial expertise.... [4] Eliminate the 'catch 22' for acknowledging fiduciary status.... [5] Fix the 'Best Interest' exemption."

The Estopped Fiduciary: When May Participants Rely on Incorrect Calculations?

"[A recent] Ninth Circuit decision clearly states that estoppel is not available where relief ... would contradict the written plan provisions. However, [in] another decision in Michigan ... a retiree named Paul successfully sued to estop a plan from correcting pension overpayments. Why did Paul succeed and should plan fiduciaries be worried about this decision? ... [U]se of clear disclaimers is still a good practice. Regular self-audits should still permit plan sponsors to correct typical honest mistakes. And this whole lawsuit could have been avoided if the elements of Paul's calculation had been carefully checked when he asked about his service." [Paul v. Detroit Edison, No. 13-14256 (E.D. Mich. Mar. 30, 2015)]

Double Jeopardy for Pension Plan Sponsors Selling Businesses: Have You Provided Spinoff Notices?

"[A] federal district court in Utah has ruled that former participants are entitled to benefits under both their original plan and their new plan for the same period of service because they were not notified of the transfer of their benefits.... This is clearly a result that the parties never intended.... How can plan sponsors avoid it? ... [These] practices put sponsors in a position to respond effectively to double-dipping claimants:" [Anderson v. CEMEX, No. 2:12-00136 (D. Utah Dec. 29, 2014)]

Boomerangs and the PBGC, or When a Sale Is Not a Sale

"This case seems on course to give us some rules about when a transaction's principal purpose is to evade liability. We have already had some guidance in another circuit on how that phrase is applied in the multi-employer plan context, as the Sun Capital Partners court found that simply taking less than an 80% ownership interest wasn't an attempt to evade liability. However, this case involves an interest that was originally higher than 80% and was reduced. Further, this court seems to be willing to entertain the idea that a transaction can have more than one principal purpose." [PBGC v. The Renco Group, No. 13-cv-621 (S.D.N.Y. Mar. 5, 2015)]

The Great Fiduciary Debate: Will U.S. Brokers Be Held to a Fiduciary Standard?

"[We] can't count on any regulatory changes actually coming into effect any time soon. What does this mean for plan fiduciaries? If they are following best practices, new rules will probably be a non-event because they will already be getting their investment advice from ERISA fiduciaries.... Plan committees don't need action by a government authority in order to hire these professional fiduciaries and protect themselves. If they all did so, this debate would be moot for 401(k) plans (IRAs may be a different story) because non-fiduciaries wouldn't be consulted."