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Supreme Court will decide ERISA fiduciary case.
January 21, 2007 by Ross Runkel at LawMemo
Do ERISA fiduciary duties apply when a plan administrator decides to terminate a plan? Are there fiduciary duties as to the implementation of the termination?
The US Supreme Court announced January 19 that it will take up Beck v. PACE International Union, and a decision is expected by the end of June. [Details]
When Crown Vantage Inc went into bankruptcy its board of directors served as the administrator of Crown's 18 defined benefit pension plans. The board began considering terminating the plans by purchasing annuities. PACE, representing employees covered by 17 plans, recommended as an alternative that the plans be merged with a pre-existing multi-employer plan.
The board went forward with its termination decision by purchasing annuities for 12 plans.
PACE brought adversary proceedings in bankruptcy court claiming that Crown's board breached its fiduciary duties under the Employee Retirement Income Security Act (ERISA) by failing to give adequate consideration to the merger proposal.
The bankruptcy court agreed.
Beck, the trustee in bankruptcy, appealed to the district court which affirmed.
The 9th Circuit affirmed, holding that
- The decision to terminate the plan was a business decision not subject to ERISA fiduciary obligations
- The implementation of the decision was discretionary in nature and subject to ERISA fiduciary obligations
- Crown's board breached its fiduciary duty by failing to adequately investigate the proposed merger
The US Supreme Court granted certiorari on January 19 to review the 9th Circuit judgment.
The formal question presented to the Supreme Court:
"Whether a pension plan sponsor’s decision to terminate a plan by purchasing an annuity, rather than to merge the pension plan with another, is a plan sponsor decision not subject to ERISA’s fiduciary obligations."
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Editor: Ross Runkel, Professor of Law Emeritus. email Ross@LawMemo.Com, Phone 503-399-8028. Copyright LawMemo, Inc.
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