Justia ERISA Opinion Summaries

To stimulate economic development, Jersey City, New Jersey offers tax exemptions and abatements to private developers of projects in certain designated areas. Those tax benefits are conditioned on the developers’ entry into agreements with labor unions that bind the developers to specified labor practices. Employers and a trade group challenged that law, alleging that it is preempted by the National Labor Relations Act (NLRA) and Employee Retirement Income Security Act (ERISA) and barred by the dormant Commerce Clause of the U.S. Constitution. The district court dismissed the complaint, concluding that Jersey City acts as a market participant, not a regulator, when it enforces the law, so that NLRA, ERISA, and dormant Commerce Clause claims were not cognizable. The Third Circuit reversed, holding that Jersey City was acting as a regulator in this context. The city lacks a proprietary interest in Tax Abated Projects. The Supreme Court has recognized a government’s proprietary interest in a project when it “owns and manages property” subject to the project or it hires, pays, and directs contractors to complete the project; when it provides funding for the project; or when it purchases or sells goods or services. This case fits none of these categories. View "Assoc. Builders & Contractors, Inc. v. City of Jersey City" on Justia Law

St. Peter’s, a non-profit healthcare entity, runs a hospital, and employs over 2,800 people. It is not a church, but has ties to a New Jersey Roman Catholic Diocese. The Bishop appoints most members of its Board of Governors and retains veto authority over Board actions. The hospital has daily Mass and Catholic devotional pictures and statues throughout the building. In 1974, St. Peter’s established a non-contributory defined benefit retirement plan; operated the plan subject to the Employee Retirement Income Security Act (ERISA); and represented that it was complying with ERISA. In 2006 St. Peter’s filed an IRS application, seeking a church plan exemption from ERISA, 26 U.S.C. 414(e); 29 U.S.C. 1002(33), continuing to pay ERISA-mandated insurance premiums while the application was pending. In 2013, Kaplan, who worked for St. Peter’s until 1999, filed a putative class action alleging that St. Peter’s did not provide ERISA-compliant summary plan descriptions or pension benefits statements, and that, as of 2011, the plan was underfunded by more than $70 million. While the lawsuit was pending, St. Peter’s received an IRS private letter ruling. affirming the plan’s status as an exempt church plan for tax purposes. The Third Circuit affirmed denial of a motion to dismiss, concluding that St. Peter’s could not establish an exempt church plan because it is not a church. View "Kaplan v. Saint Peter's Healthcare Sys." on Justia Law

ABA Retirement, a not‐for‐profit corporation created by the American Bar Association to provide its members and their employees with a retirement plan qualified to take advantage of income tax benefits, created master retirement plans for adoption by lawyers and law firms. In 1999 ABA Retirement hired State Street Bank to act as sole Plan trustee. ABA Retirement directors ceased to be trustees. ABA Retirement still maintained the IRS‐approved master tax‐qualified retirement plans and acted as Plan fiduciary, with authority to engage, monitor, and fire its trustee. It was responsible for Plan documents (ensuring that they were tax‐qualified), oversight of vendors, contract negotiations, and approval of State Street’s marketing plan. State Street had authority to engage and fire investment advisors, but was required to consult with ABA Retirement. The Plan paid ABA Retirement a fee for its services in connection with the Program based on a percentage of l invested assets. ABA Retirement received the interest on the funds. In 2000, 2001, and 2002, ABA Retirement reported gross income of $1,601,217 to $1,861,258. Its taxable income for those years was $384,972 to $672,098; it held assets worth $3.5 million. On tax returns ABA Retirement described itself as an employee benefit fund, and its product as retirement plans. In 2004 ABA retirement sought tax‐exempt status. In 2005, the IRS determined that ABA Retirement did not qualify for the exemption. ABA Retirement filed claims for refunds on taxes it paid from 2000-2002; those were denied. ABA Retirement filed suit, arguing that it was a tax‐exempt “business league” under 26 U.S.C. § 501(c)(6), from 2000 to 2002, and entitled to a refund. The district court granted summary judgment in favor of the government. The Seventh Circuit affirmed. View "ABA Ret. Funds v. United States" on Justia Law

In 2006 Finkl, a Chicago steel producer, initiated termination of its defined benefit pension plan under the Employment Retirement Income Security Act, apparently anticipating merger with another company. The Plan was amended in 2008, to include Section 11.6, a special provision for distributions in connection with the contemplated termination, to apply if a participant “ha[d] not begun to receive a benefit under the Plan at the time benefits are to be distributed on account of termination of the Plan.” In May 2008, Finkl decided not to terminate the Plan. Section 11.6 was deleted. Finkl notified the IRS that the Plan was not going to terminate. Seven Finkl employees sued, alleging that they were entitled to an immediate distribution of benefits while they were still working for Finkl and that repeal of Section 11.6 violated the anti-cutback terms of the Plan, I.R.C. 411(d)(6), and ERISA, 29 U.S.C. 1054(g). The IRS sent Finkl a favorable determination letter that the Plan had retained its tax qualified status. In 2011, the Seventh Circuit affirmed the district court’s award of summary judgment to Finkl. The employees then pursued a claim in the Tax Court, which ruled that they were collaterally estopped by the Seventh Circuit decision from challenging the 2009, determination letter, which concluded that the Plan had not been terminated and continued to qualify for favorable tax treatment. The Seventh Circuit affirmed. View "Carter v. Comm'r of Internal Revenue" on Justia Law

Barrett, a financial planner, induced the plaintiffs, small New Jersey corporations and their owners, to adopt an employee welfare benefit plan known as the Employers Participating Insurance Cooperative (EPIC). EPIC was promoted as a multiple employer welfare benefit plan for which contributions were deductible under 26 U.S.C. 419A(f)(6), but in fact was a method of deferring compensation. After the Internal Revenue Service audited the plans and disallowed deductions claimed on federal income tax returns, plaintiffs sued Barrett and other entities involved in the scheme, asserting claims under the Employee Retirement Income Security Act of 1974, 29 U.S.C. 1001-1461; the civil component of the Racketeer Influenced and Corrupt Organization Act, 18 U.S.C. 1961-1968; and New Jersey statutory and common law. A jury found Barrett liable of common law breach of fiduciary duty, but not liable on the RICO claim. The district court held a bench trial on the ERISA claim and issued partial judgment for plaintiffs. The Third Circuit affirmed in part, but vacated holdings that deemed certain state law causes of action preempted by ERISA, found certain ERISA claims time-barred, and limited the jury‘s consideration of one RICO theory of recovery. View "Cappello v. Iola" on Justia Law

At age 56, plaintiff left his position as a partner in a law firm and enrolled in school. Employees who depart at age 55 or older may withdraw money from the employer's retirement plan. They must pay income tax, but a 10 percent additional tax imposed on most withdrawals before age 59½ does not apply to distributions "made to an employee after separation from service after attainment of age 55," 26 U.S.C. 72(t)(1), (2)(A)(v). Plaintiff moved the funds from the plan to an individual retirement account then withdrew about $240,000. A rollover is not taxable 26 U.S.C. 402(c). Plaintiff paid income tax. The IRS claimed he owed the 10 percent additional tax, plus a penalty for substantial underpayment of taxes. The Tax Court held that he owed the tax on money not used for tuition. The Seventh Circuit affirmed; the distribution was made to an IRA, not to the employee. Section 6662 excuses the taxpayer if there was substantial authority for the tax return's treatment, but there was no authority for plaintiff's position. View "Kim v. Comm'r of Internal Revenue" on Justia Law