The Eleventh Circuit Removes a Hurdle in ERISA Fiduciary Breach Lawsuits

by Alden Hey and Stephen T. Rutkowski

What rule did the Eleventh Circuit discard for workers who sue over their retirement and benefit plans?

The Eleventh Circuit decided in Bolton v. Inland Fresh Seafood Corp. of Am., Inc. that employees were no longer required to exhaust their administrative remedies before filing suit under the Employee Retirement Income Security Act (ERISA). The court, however, left open the question of whether plan fiduciaries can independently impose such a requirement in their plan documents.

ERISA is a federal law that allows members of employee benefits plans to sue plan administrators for failing to properly manage the plan to the sole benefit of the plan participants. The Department of Labor (DOL) identifies the following conduct as examples of civil ERISA violations:

• “Failing to operate the plan prudently and for the exclusive benefit of participants;

• Using plan assets to benefit certain related parties to the plan, including the plan administrator, the plan sponsor, and parties related to these individuals;

• Failing to properly value plan assets at their current fair market value, or to hold plan assets in trust;

• Failing to follow the terms of the plan (unless inconsistent with ERISA);

• Failing to properly select and monitor service providers;

• Taking any adverse action against an individual for exercising his or her rights under the plan (e.g., being fired, fined, or otherwise being discriminated against);

• Failure to comply with ERISA Part 7 and the Affordable Care Act (welfare plans only).”

This recent ruling by the Eleventh Circuit overruled Mason v. Continental Group, Inc. (1985) and related rulings to the extent that they limited plan participants’ ability to sue under ERISA until they had exhausted all administrative remedies available to them through their benefits plan(s).

What does “exhaust administrative remedies” mean?

The exhaustion requirement was imposed by the ruling in Mason that all internal complaint or conflict resolution systems offered by benefits plan administrators must be exhausted by unsatisfied beneficiaries before they can assert a claim under ERISA in court. For example, if an employee enrolled in a company retirement plan is concerned that the administrative fees for the plan are excessive, they must report that through their company’s complaint reporting system before filing an ERISA claim in federal court. In their recent ruling in Bolton, the Eleventh Circuit stated that this standard was “an atextual product of judicial creation based solely on policy reasons.” In other words, this exhaustion requirement was not actually present in the original ERISA statute and instead came from prior court decisions seeking to reduce the volume of ERISA cases.

Going forward, employees in Alabama, Florida, and Georgia are no longer required to exhaust internal dispute resolutions or remedies before taking asserting statutory claims under ERISA. This removes a major legal hurdle that ERISA claimants in those states had previously faced, permitting them to seek relief in federal court without first having to jump through administrative hoops. Following this decision, the Eleventh Circuit joins seven other circuits—the Third, Fourth, Fifth, Ninth, Tenth, and D.C.—in holding that statutory claims under ERISA do not require exhaustion of administrative remedies.

What kinds of plan problems can lead to a fiduciary breach claim under ERISA?

Common plan administration failures that can result in ERISA actions include: high fees, poor investment choices, and overpaying for company stock. In each of these cases, plan administrators make decisions or fail to act such that plan beneficiaries are financially harmed. This is a breach of the fiduciary duty plan administrators have to act in the best interest of the plan beneficiaries. While these listed failures are common causes of ERISA actions, any breach of fiduciary duty by plan administrators could give rise to an ERISA claim.

How can an employee or plan participant work with Miller Shah’s ERISA team to evaluate whether a retirement or benefit plan may have been mismanaged?

At Miller Shah, our ERISA team has decades of combined experience in evaluating the administration of employee benefits plans. We can assist employees and plan participants through statistical and holistic modelling of plan assets and the decision-making that surrounds them. If you believe that a plan you are enrolled in might have been mismanaged, you can reach out to our team directly through the contact form below.