PLANADVISER - September/October 2018 - 13

5th Circuit Sides With Whole Foods
The 5th U.S. Circuit Court of Appeals has firmly sided with
Whole Foods by rejecting a stock drop lawsuit filed by
participants in the company's defined contribution (DC)
retirement plan.
The case ascended on appeal from the U.S. District Court
for the Western District of Texas, where it also flatly failed
to meet the high hurdles for proving standing established
in U.S Supreme Court (SCOTUS) decision Fifth-Third Bank v.
Dudenhoeffer.
Siding with the District Court's interpretation of SCOTUS'
precedent, the Appeals Court ruled that the plaintiff failed
to plausibly allege an alternative action the fiduciaries could
have taken that would have been consistent with securities
laws and that a prudent fiduciary would have viewed as less
likely to harm the fund than help it.
The underlying case was filed by Thomas Martone, a
former Whole Foods employee. He brought the proposed
class action against certain Whole Foods executives who
are named fiduciaries for the company's 401(k) plan. In
the mold of a classic stock drop suit, Martone alleged that
these executives breached their fiduciary duties by allowing
employees to continue investing in Whole Foods stock
" while its value was artificially inflated due to a widespread
overpricing scheme. "
PBGC May Sue for Successor Liability
Reversing a federal district court's decision, the 6th U.S.
Circuit Court of Appeals has found that the Pension Benefit
Guaranty Corporation (PBGC) may be able to recoup termination
liabilities for a single-employer defined benefit
(DB) plan from a personal trust of the owner or the asset
purchasers of the sponsoring company.
Writing for the panel, Circuit Judge Martha Craig
Daughtrey explained in the opinion that the PBGC sued
to collect more than $30 million in underfunded pension
liabilities from Findlay Industries following the shutdown of
its operation in 2009. When Findlay could not meet its obligations,
PBGC looked to hold liable a trust started by Findlay's
founder, Philip D. Gardner (the Gardner Trust), treating
it as a " trade or business " under common control by Findlay.
PBGC also asked the court to apply the federal common-law
doctrine of successor liability to hold Michael J. Gardner,
Philip's son, liable for some of Findlay's debt.
Gardner, a 45% shareholder of Findlay and its former
CEO, had purchased the company's assets and started his
own companies, using the same land, hiring many of the
same employees and selling to Findlay's largest customer.
In determining whether the Gardner Trust was a " trade
or business " under Findlay's common control, Daughtrey
noted that the district court rejected the approach of sister
circuits that apply a " categorical test " to determine liability.
The categorical test treats any entity leasing to a commonly
controlled entity as a trade or business under the Employee
Retirement Income Security Act (ERISA). Instead of the categorical
test, the district court applied a fact-intensive test
cribbed from Commissioner v. Groetzinger, a case interpreting
the term " trade or business " as used in the tax code. The
district court held, under the Groetzinger test, that the trust
was not liable.
6th Circuit Rules for Chrysler Pension Plan Participants
The U.S. 6th Circuit Court of Appeals has ruled once again
on pension plan litigation filed by a former employee of
Chrysler Group.
As with previous decisions in the case, the opinion filed
by the 6th Circuit is something of a mixed bag. In short, this
second appellate decision reverses the district court's latest
grant of summary judgment to the plan on the lead plaintiff's
request for reformation. On the other hand, the decision
affirms summary judgment on the plaintiff's request
for equitable estoppel and remands the matter again to the
district court for further proceedings consistent with the
latest appellate opinion.
The case had reached the 6th Circuit for a second time on
appeal from the U.S. District Court for the Eastern District
of Michigan. In the first appellate decision, the Circuit
Court sided with Chrysler on some matters, but it determined,
in favor of the plaintiff/appellee, that the pension
plan's summary plan description (SPD) in fact failed to
provide all of the information required by the Employee
Retirement Income Security Act (ERISA) about eligibility
for supplemental benefits. At that juncture, the Appellate
Court concluded that a participant who relied on the SPD
and expected those benefits may be due relief.
PBGC Rules to Facilitate Multiemployer Plan Mergers
The Pension Benefit Guaranty Corporation (PBGC) has finalized
guidance on mergers and transfers between multiemployer
plans. Mergers of multiemployer plans, PBGC says,
will help protect the benefits earned by workers and retirees
and extend the solvency of troubled plans.
" Although we have limited resources to address the
anticipated insolvencies of multiemployer plans, facilitated
mergers under this final rule could help preserve retirement
benefits for workers and retirees in some struggling multiemployer
plans, " says PBGC Director Tom Reeder. " Merged plans
may save money from lower administration and investment
expenses and provide greater stability by expanding the base
of employers that contribute to the plan. "
ERIC Asks the IRS to Expand on Private Letter Ruling
The ERISA [Employee Retirement Income Security
Act]
Industry Committee (ERIC) sent a letter to the IRS
commending it for a private letter ruling (PLR) it recently
issued. The ruling permits a plan sponsor to contribute to
its company's 401(k) on behalf of participants who were
paying down student loan debt but not necessarily contributing
to the 401(k) plan.
ERIC is asking the IRS to issue a revenue ruling that
would broaden the reach of the guidance to enable all
sponsors of 401(k) plans to make similar contributions,
as a private letter ruling is directed only to the individual
taxpayer requesting it. -PA
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