Ninth Circuit Says Pension Plan Participants Adequately Alleged ERISA Violation Based on "Grossly" Inaccurate Disclosures 

On May 9, 2024, the Ninth Circuit reversed the dismissal of a putative class action brought by two retired employees of Northrop Grumman Corporation, who participated in subplans of the Northrop Grumman Pension Plan (the Northrop Plan). See Bafford v. Northrop Grumman Corp., No. 22-55634 (9th Cir. May 9, 2024). The named plaintiffs alleged that the Northrop Plan's Administrative Committee, as plan administrator, violated 29 U.S.C. § 1025(a)(1)(B)(i)-(ii) by not providing pension benefit statements automatically or on request and by providing "substantially inaccurate" statements. Of note, the court held that § 1025(a)(1)(B)(ii) provided grounds for the plaintiffs' claim that the statements they did receive were so grossly inaccurate as to not qualify as pension benefit statements at all. The Ninth Circuit is the first appellate court to weigh in on the question of whether inaccuracy may constitute a violation of § 1025(a)'s disclosure requirements.

The plaintiffs alleged that, while they were still employed by Northrop, they followed the instructions in the relevant Summary Plan Description and repeatedly attempted to request pension benefit statements through the company's employee benefits website. The website was not fully operational, however, so it directed the plaintiffs to call a telephone number to obtain their statements, which they did. After the plaintiffs retired, the Administrative Committee switched its third-party contractor and had an audit performed. When the audit revealed that the plaintiffs' benefits had been incorrectly calculated, the Northrop Plan cut their benefits by more than 50 percent. 

The plaintiffs brought suit in 2018, alleging breach of fiduciary duties, violations of ERISA's disclosure provisions, and violations of state law. See Bafford v. Northrop Grumman Corp., No. 18-cv-10219 (C.D. Cal. Dec. 7, 2018). The district court dismissed the case as a whole, and, in a much-discussed 2021 decision, the Ninth Circuit affirmed on the fiduciary claims, finding that the calculation of benefits from a pre-set formula was not a fiduciary function. The court returned the remainder of the plaintiffs' claims to the district court. On remand, the plaintiffs filed a second amended complaint and, again, the district court dismissed their disclosure claims, reasoning that ERISA does not require a plan administrator to provide accurate pension benefit statements. When the plaintiffs filed a third amended complaint, the district court expressly ordered them to remove the previously rejected allegations and it struck the plaintiffs' fourth amended complaint because they continued to allege that they received inaccurate pension benefits statements. The plaintiffs then requested entry of final judgment and appealed.

Back at the Ninth Circuit, the plaintiffs raised four issues. The court found in favor of the plaintiffs on all four. 

The first question concerned § 1025(a)(1)(B)(i), which obligates plan administrators to, at a minimum, notify participants annually of the availability of and process for requesting pension benefit statements. The plaintiffs claimed that the Administrative Committee failed to provide routine pension benefit statements in violation of that provision. The court found that the plan documents reflected in the record did provide such notice, but that the record failed to establish that the notice was provided annually, making dismissal of the claim premature.

The next two questions concerned the construction of § 1025(a)(1)(B)(ii), which requires administrators to provide pension benefit statements upon written request. Disagreeing with the district court, the Ninth Circuit concluded that substantially inaccurate benefit statements do not meet ERISA's plain-text requirements for such disclosures:

It is plain that if a benefit amount disclosed in a pension benefit statement is substantially miscalculated according to the plan's formula, then that statement of the benefit amount is not 'determined under the plan' as required by § 1002(23)(A) and does not reflect the participant's 'total benefits accrued' as required by § 1025(a)(2)(A)(i). It follows that a pension benefit statement reporting a substantially inaccurate benefit amount does not comply with § 1025(a)(1)(B)(ii).

Further, the court found that the requests the plaintiffs made through the employee benefits website qualified as "written" requests sufficient to trigger the Administrative Committee's duties. The court rejected the defendants' contention that the statements plaintiffs requested did not qualify as "pension benefit statements" under ERISA because the plaintiffs requested estimates of future benefits as opposed to their "total benefits accrued." According to the court, the defendants' position raised factual questions inappropriate for resolution on a motion to dismiss.

Finally, the Ninth Circuit reversed the district court's finding that statutory remedies were not available for the plaintiffs' disclosure claims. The court concluded that ERISA "broadly permits the imposition of penalties" for violations of a plan administrator's disclosure obligations. 

The case now returns yet again to the district court. Although the participant class secured an important legal win in the Ninth Circuit on the question of the viability of their inaccuracy allegations under ERISA's disclosure provisions, the court's decision also raised multiple factual disputes that the plaintiffs must overcome in the next stages of litigation before they will be entitled to relief. 

District Court Rejects the "Effective Vindication" Doctrine and Compels Arbitration in Forfeiture Case

A few weeks ago, we told you about Cedeno v. Sasson, No. 21-2891, --- F.4th ---- (2d Cir. May 1, 2024), a case in which the Second Circuit joined the Third, Seventh, and Tenth Circuits in relying on the "effective vindication" doctrine and holding that when an ERISA plan's arbitration provision allows only individual relief, the provision is invalid because it prevents the "effective vindication" of participants' rights. Since then, at least one district court has expressly distinguished Cedeno and granted a defendant's motion to compel arbitration.

On May 17, 2024, the U.S. District Court for the Central District of California ruled in favor of Tetra Tech, Inc. and ordered arbitration in a case challenging how the company handles the 401(k) plan money forfeited by workers who leave their jobs after short periods. See Yagy v. Tetra Tech, Inc., No. 24-cv-1394 (C.D. Cal. May 17, 2024). Unlike plan contributions from an employee's salary, which are immediately fully vested, employer contributions can remain unvested for a period of time and can be forfeited when a worker leaves the company before the vesting period has run. In Yagy, the plaintiff, a former company employee and a former participant in the Tetra Tech, Inc. and Subsidiaries Retirement Plan (the Tetra Tech Plan), alleged that the company mismanaged the Tetra Tech Plan by allocating forfeited money to reduce the company's future contributions to the Tetra Tech Plan, instead of applying those funds to offset plan expenses. According to the plaintiff's putative class-action complaint, by doing so, the company acted to benefit itself rather than solely in the interests of Tetra Tech Plan participants as required by ERISA. 

The complaint asserted four claims under ERISA: breach of fiduciary duty of loyalty (29 U.S.C. § 1104(a)(1)(A)), breach of fiduciary duty of prudence (§ 1104(a)(1)(B)), breach of ERISA's anti-inurement provision (§ 1103(c)(1)), and prohibited transactions (§ 1106(a)(1)). The plaintiff sought restitution of all losses to the Tetra Tech Plan resulting from each of the foregoing violations of ERISA, disgorgement of all assets and profits secured by the company resulting from the ERISA violations, and removal of the Plan's fiduciaries. 

The district court began its analysis by describing the Supreme Court's take on the Federal Arbitration Act (the Act), i.e., the Act reflects "liberal federal policy favoring arbitration" and the "fundamental principle that arbitration is a matter of contract." From there, the court turned to the dispute at hand. The parties agreed that the governing arbitration provision was valid and required binding arbitration for all claims arising from the Tetra Tech Plan — including claims under ERISA § 502(a)(2), which permits suit by a plan participant "for appropriate relief." The dispute turned on the scope of relief available in arbitration. 

Pursuant to the Tetra Tech Plan, monetary relief can be awarded on an individual basis only to that individual's defined contribution account. For claims brought under ERISA § 409 and § 502(a)(2), the Tetra Tech Plan expressly states that participants "may obtain losses to the Plan measured by the alleged monetary losses to the individual Claimant's individual defined contribution account." Participants "waive[], forfeit[], and forever relinquish[] the right to bring a Claim for monetary damages, losses, or injury to any individual Plan account other than the Claimant's account." 

The plaintiff contended that she should nonetheless be permitted to pursue plan-wide monetary relief in arbitration because the Tetra Tech Plan's restrictions on statutory remedies fell within the "effective vindication" doctrine and could not be enforced. Quoting Cedeno, the district court disagreed, noting that "'terms in an arbitration agreement that have the effect of prospectively waiving a party's statutory remedies are not enforceable,'" but it concluded that the challenged provisions in the Tetra Tech Plan did not operate as an impermissible prospective waiver of the plaintiff's substantive statutory remedies under ERISA. It held that "nothing in § 502(a)(2) suggests that an ERISA § 502(a)(2) plaintiff has an unqualified right to bring a collective action to recoup all of a fiduciary's losses and gains at once." Instead, "§ 502(a)(2) merely authorizes a plan participant to sue a fiduciary for 'appropriate relief,'" and "it does not follow that 'appropriate relief' in all cases must include the right to pursue plan-wide monetary relief, rather than relief for a participant's own distinct harm." Accordingly, the court concluded that "the parties' agreement in this case — which limits Plaintiff to obtaining only relief that is available in her individual capacity — does not prospectively waive any of her substantive statutory remedies."

The court distinguished Cedeno, observing that the class-action waiver in Cedeno precluded the plaintiff in that case from "seek[ing] or receiv[ing] any remedy that has the purpose or effect of providing additional benefits or monetary or other relief to any Employee, Participant, or Beneficiary other than the Claimant" (emphasis added). In other words, the plaintiff was prohibited from "obtaining any relief that had a plan-wide effect, including, for example, the removal of a fiduciary, even though such relief was expressly contemplated by ERISA and would have been available in his or her individual capacity." In contrast, the Tetra Tech Plan's arbitration provision expressly provides that it shall not "limit a Claimant's right, if any exists under ERISA, to seek, in the Claimant's individual capacity, relief that may be awarded under ERISA to the Claimant in the Claimant's capacity as an individual who is not bringing a class or collective action." Thus, the court concluded, the arbitrator could award to the plaintiff any and all relief available under ERISA in her "capacity as an individual," including relief that would benefit the Tetra Tech Plan such as removal of a fiduciary. As such, the court said, the Tetra Tech Plan does not prospectively waive the plaintiff's right to pursue her statutory remedies and arbitration was therefore required. 

The Second Circuit will likely be asked to review the district court's decision and its reasoning distinguishing Cedeno in particular.

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