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Looking Ahead: Employee Benefits

Numerous cases involving the Employee Retirement Income Security Act (ERISA) and employees’ rights could be coming before the Court.

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There are several issues relating to employee benefits that may reach the Court in the coming terms. Last year, we wrote that the Court may face residual questions about what constitutes an imprudent action in violation of ERISA and need to further clarify the breach-of-fiduciary-duty pleading standards after Hughes v. Northwestern University, 142 S. Ct. 737 (2022). In Hughes, the Court held that determining whether participants state plausible claims against plan fiduciaries involves a “context specific inquiry” of the fiduciaries’ “duty to monitor all plan investments and to remove any imprudent ones.” Id. at 740 (citing Tibble v. Edison Int’l, 575 U.S. 523, 530 (2015)). As predicted, the “context-specific inquiry” required by the Court has led to a flurry of litigation, as plaintiffs and plan fiduciaries test the contours of what constitutes a plausible claim for violations of the duty of prudence.

Earlier this year, the Seventh Circuit issued a decision reexamining the plaintiffs’ allegations in Hughes, holding that two of the plaintiffs’ claims alleging violations of the duty of prudence were sufficiently plead. 63 F.4th 615 (7th Cir. 2023). The same court, however, affirmed a dismissal of another plaintiff’s claims, notwithstanding Hughes, holding that while Hughes rejected the Seventh Circuit’s assumption that the availability of a mix of high and low-cost investment options insulated plan fiduciaries from liability, it otherwise had no bearing on the court’s analysis. Albert v. Oshkosh Corp., 47 F.4th 570 (7th Cir. 2022).

Further evidence of the issue’s complexity can be found in a recent Sixth Circuit opinion that, citing Hughes, held that the plaintiffs failed to plausibly allege violations of the duty of prudence by merely alleging defendants should have chosen solely index, rather than actively managed, funds. See Smith v. CommonSpirit Health, 37 F.4th 1160, 1166 (6th Cir. 2022) (plaintiffs pointing to the virtues of specific alternative investments may help show imprudence in some cases, but merely alleging the existence of alternative categories is not enough). Shortly thereafter, the Sixth Circuit similarly upheld dismissal of the plaintiffs’ claims concerning overall plan fees and the cost and performance of investments but reversed the district court’s dismissal of claims concerning the availability of different share classes. Forman v. TriHealth, Inc., 40 F.4th 443 (6th Cir. 2022) (stating that “context is often destiny” and relying on cases from the Second, Third, Eighth, and Ninth Circuits to partially reverse).  

Another issue that may reach the Court concerns ERISA’s prohibited transactions provision. Section 406(a) of ERISA prohibits plan fiduciaries from engaging in certain transactions with “parties of interest,” which include plan fiduciaries, the employer, employees, and any third-party service providers. The Ninth Circuit recently held that AT&T’s contract with its recordkeeper Fidelity became a prohibited transaction when AT&T failed to consider the millions of dollars in added fees for Fidelity that were generated by one aspect of the arrangement (Fidelity providing plan participants access to its brokerage account platform to consider additional choices). Bugielski v. AT&T Servs., Inc., No. 21-56196, 2023 WL 4986499 (Aug. 4, 2023). The court rejected AT&T's argument that this was an “arm’s length” transaction. Id. at *9-12 (rejecting AT&T’s reliance on Sweda v. Univ. of Penn., 923 F.3d 320 (3rd Cir. 2019) and Albert v. Oshkosh Corp., 47 F.4th 570 (7th Cir. 2022)).

AARP Foundation Supreme Court Preview

The Supreme Court often hears cases affecting the lives of people over 50. Read our review of key cases coming before the Court this year and likely to come in the future.



One perennial topic in ERISA litigation is the extent to which the statute preempts state law claims. The petition we wrote about last year, requesting review of a Colorado Court of Appeals decision that prevents parties from relying on state law to lay claim to ERISA retirement accounts after their funds have been distributed, was denied earlier this year. It remains to be seen if another case will provide a vehicle for the Court to clarify this long-disputed area of ERISA preemption and alter claimants’ abilities to challenge how ERISA plan proceeds are distributed.

Whether ERISA’s preemption clause prevents states or municipalities from creating employee-benefit programs filling the gaps in private employer plans is another issue we continue to monitor. Last year, the Ninth Circuit held that two programs designed to help workers save money — a Seattle ordinance requiring hotels that have no employee health plan to pay their employees’ health care costs and a California statute creating state-administered retirement savings accounts for workers whose employers do not offer ERISA plans (CalSavers) — are not preempted by ERISA. ERISA Industry Committee v. City of Seattle, 840 Fed. App’x 248, 248-49 (9th Cir. 2021); Howard Jarvis Taxpayers’ Association v. California Secure Choice Retirement Savings Program, 997 F.3d 848, 867 (9th Cir. 2021). Following the Supreme Court’s denial of the plaintiffs’ cert. petition in the CalSavers case prior to the 2022 term, the Court also denied the cert. petition in ERISA Industry Committee.

Last year, AARP also sought to intervene in Pacific Bells LLC v. Inslee to defend Washington State’s legislation creating state-administered individual accounts to be used for long-term care (“WA Cares”), in particular to argue that the Act is not preempted by ERISA. No. C21-1515 TSZ (W.D. Wash. March 10, 2022) (ECF No. 30). The District Court agreed, dismissing the case and holding that because WA Cares is not “‘established or maintained’ by an employer and/or employee organization, it is not an ‘employee benefit plan’ and it is not governed by ERISA.” Pac. Bells, LLC v. Inslee, No. C21-1515 TSZ, 2022 WL 1213322, at *2 (W.D. Wash. Apr. 25, 2022).   

There remains a deepening split among the circuit courts concerning the degree to which arbitration agreements signed by individual plaintiffs bar the same individual from bringing representative actions for breach of fiduciary duty on behalf of all plan members under § 502(a)(2) of ERISA. Two Third Circuit cases decided this year illustrate why the complex issues presented by ERISA plan arbitration agreements will continue to be a fertile source of controversy. In Henry v. Wilmington Trust NA, 72 F.4th 499 (3d Cir. June 30, 2023), the court construed the individualized arbitration language as inapplicable to Plan-wide claims, while gratuitously opining that compelling arbitration was impermissible, regardless. However, in Berkelhammer v. ADP TotalSource Grp., No. 22-1618, 2023 WL 4554581 (3d Cir. Jul. 17, 2023), the Third Circuit ruled that plaintiffs were bound to arbitrate claims against the plan, its investment committee, and an advisor to the plan (“NFP”) even though the plaintiffs had personally signed no arbitration agreement whatsoever. The plan had signed an arbitration agreement with its advisor NFP and — now that the plaintiffs were suing on behalf of the plan — they, too, were compelled to arbitrate. Id. at *1. The high stakes and many factual permutations regarding the interpretation and enforceability of arbitration contracts in this setting almost guarantee that these issues eventually will reach the Court.

Julie Nepveu

Meryl D. Grenadier

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