While legislation involving Executive Life annuities is on hold, congressional action could help pensioners get promised benefits in one current court case.
The legislation - S. 1312, the Pension Annuitants Protection Act of 1993 - would give the Department of Labor, a former participant, a beneficiary or a fiduciary the power to sue to get "appropriate relief" if a plan fiduciary's purchase of an annuity violates the Employee Retirement Income Security Act.
This could have been used in Maher vs. Strachan Shipping Co., the Louisiana District Court case that denied full benefits to the company's former plan participants. When the plan terminated in 1987, Executive Life Insurance Co., Los Angeles, annuities were purchased, which eventually turned sour and left about 100 former plan participants without promised retirement benefits.
In October, the court decided participants could not receive promised benefits because the plan had terminated and thus they no longer were participants, and because of a statute of limitations in ERISA. The plaintiffs have filed a motion to reconsider the decision that will be heard in January.
The legislation would have taken care of the participants' problem, experts said, because it would clarify that participants have standing to sue if there was a fiduciary breach in purchasing an annuity.
"The bill isn't doing anything but clarifying what's already in the law, that former participants do have a remedy," said Bruce Spizer, the attorney representing the participants in the case.
"It's a perfectly decent bill, and there's a number of people that would be helped by this," said Mark Ugoretz, president of the ERISA Industry Committee, Washington.
About one week after Maher was decided, the bill passed the Senate and was brought to the House for a voice-vote approval. Instead of getting passed, the bill was sent to the House Education and Labor Committee, where it still sits.
The problem with the legislation, experts said, is that the Department of Labor wants a broader ruling that would not only include these provisions, but also would reverse a June 1 Supreme Court decision in Mertens vs. Hewitt Associates. In Mertens, the court decided plan participants could not sue non-fiduciaries, such as actuaries, accountants and lawyers, for monetary damages if they "knowingly participate" in a fiduciary breach of ERISA. (Pensions & Investments, June 28).
What's more, S. 1312, if approved, might retard the Labor Department's momentum to circle around for a second pass at a legislative fix to Mertens, some experts said.
The Labor Department has claimed the Mertens decision has frustrated its enforcement efforts, especially with Executive Life cases, where the government wants employers to buy annuities that would back up those from the bankrupt insurer.
"Mertens has created all these kinds of problems," said Timothy Hauser, a trial attorney for the Labor Department, who filed an amicus brief for the Maher case. "What (the Mertens decision) means is that defendants are saying ERISA can be tightly constrained against participants."
In Maher, the Strachan Shipping Co. of Savannah, Ga., told participants it was going to terminate the plan and purchase Executive Life annuities to be effective Nov. 1, 1987. When Executive Life went into conservatorship by the California Commissioner of Insurance in April 1991, monthly payments were reduced 30%. Most of the participants lived in states that guaranteed the 30% difference, but 100 participants living in Louisiana did not have a state guaranty fund in place to make up the shortfall. They filed suit against the company to get their benefit.
In September, Aurora National Life Assurance Co., Los Angeles, took over Executive Life's annuities for the plan and further reduced Louisiana participants' benefits, said Mr. Spizer, the participants' attorney.
After Aurora analyzed the situation, participants received between 50% and 57% of their benefits, Mr. Spizer said.
But Strachan argued, and the court agreed, the Louisiana participants shouldn't be entitled to benefits from a plan that had terminated.
Further, the court said these participants didn't file a suit until August 1992, nearly five years after the plan had terminated. Under ERISA, participants need to file within three years when they are aware of a breach or violation. According to the Labor Department's Mr. Hauser, participants should have been given six years to file, because they did not know how or why the Executive Life annuities were purchased.
"This is the kind of case the Department of Labor said they were worried about," said Melissa Kahn, senior counsel for pensions at the American Council of Life Insurance, Washington.
Meanwhile, the government wants more than what Sen. Howard Metzenbaum, D-Ohio, and Sen. Nancy Kassebaum R-Kan., offered in S. 1312.
The Department of Labor "supports and appreciates Sen. Metzenbaum's and (Sen.) Kassebaum's efforts, but we continue to believe that we need a broader fix," said Assistant Secretary of Labor Olena Berg.
Mr. Spizer said the Maher case will be up for reconsideration when Congress goes back into session in January. He isn't counting on Congress getting to the legislation in time, and said the decision has a 50% chance at being changed.
The case will continue to the Fifth Circuit for an appeal if the reconsideration is denied, Mr. Spizer said.