The first months of the Supreme Court's 2015 session have brought pension plan executives and other court-watching investors both disappointment and encouragement.
October brought an early letdown when the Supreme Court refused a petition by United Refining Co. to address a split among five District Court circuits about whether a pension plan would be required to keep paying benefits at a higher level, even if that higher level was due to a pension plan administrator's mistake that was later corrected. Employer advocacy groups like the American Benefits Council, Washington, which filed an amicus brief, had hoped the high court would answer that question and clear up sponsors' fears of potential increased liability.
More disappointment for institutional investors came in November, when the court declined to consider a case brought by the $300 million Boca Raton (Fla.) Police & Firefighters' Retirement System challenging whether a company's verifiably false statement can be dismissed as “puffery” that is not specific enough to materially harm reasonable investors, or whether it is serious enough to allow securities litigation to go forward.
Some encouraging signs came Dec. 1 for investors that want to sue in state courts for securities violations, during arguments in a lawsuit brought by Escala Group Inc. shareholders against Merrill Lynch Pierce Fenner & Smith, UBS Securities LLC, Citadel Derivatives Group and others over alleged short-selling of Escala Group shares. The financial institutions want the Supreme Court, which is seen as unfriendly to securities class actions, to move such cases to federal from state courts, but the justices' questions during arguments did not seem headed that way.
Plan executives with the National Elevator Industry Health Benefit Plan had their day in court Nov. 9 in a case questioning whether ERISA fiduciaries can recover overpayments to participants, which could also affect retirement plans. To some court watchers, the justices seemed most focused on whether the Employee Retirement Income Security Act's detailed set of remedies would even allow plans to recover overpayments.
Dec. 2 brought more encouragement for plan sponsor advocates following arguments in a case questioning whether state reporting mandates for benefit plans are pre-empted by ERISA. The case, Alfred Gobeille vs. Liberty Mutual Insurance Co., involved a Vermont requirement that public and private entities, including third-party administrators, provide data on health-care payments to a state database, with the insurer arguing ERISA supersedes state authority over benefit plans. With 17 states and the District of Columbia already issuing similar mandates, Liberty Mutual's lawyer Seth Waxman, a partner with Wilmer Cutler Pickering Hale and Dorr LLP in Washington, warned during his argument that similar reporting mandates “are going to apply to pension plans,” particularly as states consider retirement program for private-sector residents.
Nancy Ross, a Chicago-based Mayer Brown partner who filed Liberty Mutual's original appeal, was encouraged when several Supreme Court justices questioned the feasibility of 50 different state mandates, and wondered whether the Department of Labor should step in. The challenge is supported by several employee benefit groups, including the American Benefits Council, ERISA Industry Committee and National Coordinating Committee for Multiemployer Plans, but opposed by AARP.
One case that court watchers consider too close to call after Nov. 2 arguments is Spokeo Inc. vs. Robins et al., which asks the high court whether laws passed by Congress allow for lawsuits over violations of statutes such as ERISA if there is not “real and material” harm. Disallowing such suits would severely restrict retirement plan participants from accessing federal courts to enforce all sorts of rules, from reporting and disclosure to vesting and funding, the Pension Rights Center in Washington argued in its amicus brief.
Several Puerto Rico bondholders, including BlueMountain Capital Management and two trusts advised by OppenheimerFunds and Franklin Advisers, were surprised Dec. 4 when the Supreme Court accepted Puerto Rico's petition to reconsider legislation allowing it to restructure $20 billion in debt held by hedge funds and other investors, who argued against taking the case that invalidated Puerto Rico's Recovery Act restructuring regime on the grounds that it conflicted with U.S. bankruptcy law. With dimming prospect of congressional action to help Puerto Rico restructure its debt, the high court might be the best, or only, shot.
Court watchers will have to wait until spring for decisions in the cases already argued, but they have other petitions to watch in the meantime. Smith vs. AEGON Cos. Pension Plan, which seeks to clarify whether ERISA litigants can shop for legal forums to bring their cases against plan fiduciaries, is scheduled for the court's Jan. 8 conference, with acceptance or denial of the petition expected a few days later.
Officials with the American Benefits Council and U.S. Chamber of Commerce hope the court will take a case on employee stock in defined contribution plans, if they can persuade the court to revisit Harris vs. Amgen Inc.
The case, which the justices will consider taking at their Jan. 8 conference, was remanded to the 9th U.S. Circuit of Appeals in San Francisco, after a pivotal 2014 Supreme Court decision in Fifth Third Bancorp et al. vs. Dudenhoeffer et al. that removed the presumption of prudence standard often used to defend the use of employer stock against fiduciary-breach lawsuits.
With the 9th Circuit applying a different standard for pleading such cases, the Supreme Court's denial of the case could lead to more fiduciary-breach cases, the groups warn. n
