The U.S. Supreme Court issued four important decisions

Supreme Court Issues Employee Benefits Decisions in the 2019-2020 Term

The U.S. Supreme Court issued four important decisions affecting employee benefits in the term it recently completed. Here is a brief summary of these cases and our preliminary views on their longer-term implications.

Bostock v. Clayton County is the most significant of the four opinions. In a 6-3 ruling authored by Justice Neil Gorsuch, the Court held that employers violated Title VII of the Civil Rights Act of 1964 when they discharged employees because of their sexual orientation or transgender status. Justice Gorsuch wrote that the individuals’ sex was an essential aspect of these employment decisions, and thus ran afoul of Title VII’s clear mandate not to take such actions because of sex.

The Court handed Bostock down just a few days after the Trump Administration issued final regulations regarding the non-discrimination provision of the Affordable Care Act (the “ACA”). In a reversal of the regulations issued in 2016, the new rules specifically exclude sexual orientation and gender identity from the individual characteristics that are protected from sex discrimination with respect to covered health care programs.

It is not possible to reconcile the final non-discrimination regulations with Bostock, and we caution plans against implementing these regulations without reference to the clear holding in Bostock. It is unclear exactly how the courts and administrative agencies will sort out this conflict. We recommend in the interim that administrators and fiduciaries review the plan terms and administrative practices to ensure that they do not permit discrimination on the basis of sexual orientation and gender identity.

The next critical benefits case of the term is Little Sisters of the Poor v. Pennsylvania. In this decision, seven Justices upheld the Trump Administration’s rule broadly exempting private businesses with religious objections from having their health plans provide birth control to women. Originally, the U.S. Department of Health & Human Services (“HHS”) included birth control for women in the list of ACA-mandated preventive care benefits, except for (a) health plans sponsored by religious entities like churches, and (b) health plans sponsored by religious nonprofits that filed an objection with HHS.

In the 2014 decision Burwell v. Hobby Lobby, the Supreme Court held, under the Religious Freedom Restoration Act, that “closely held” for-profit corporations run on religious principles could opt out of such coverage by filing an objection. The Trump Administration took things one step further and eliminated the opt-out process for religious and secular businesses altogether. In Little Sisters of the Poor, in a majority decision written by Justice Clarence Thomas, the Supreme Court upheld the Trump Administration’s elimination of this process. While commentators believe that there will be more litigation, and electioneering, on this issue, Little Sisters of the Poor confirms that the current conservative Court has an expansive view of what religious freedom means, including when it applies to nuts-and-bolts issues like employer-provided health care.

The last two employee benefits decisions of note this term involve breaches of fiduciary duty under the Employee Retirement Income Security Act of 1974 (“ERISA”), which is a federal law governing private sector health and retirement plans. In Thole v. U.S. Bank, a 5-4 majority of the Court held that plaintiff-participants lacked standing under Article III of the U.S. Constitution to challenge the investment decisions of fiduciaries to a well-funded defined benefit pension plan, because such participants still will receive all of their promised benefits on time. Writing for the majority, Justice Brett Kavanaugh argued that if there is no injury in the form of lost benefits, then there is no standing to challenge even fiduciary breaches.

While Thole provides some comfort to trustees of well-funded single and multiemployer defined benefit plans who make investment errors, it does not protect defined contribution plan fiduciaries, who now oversee the bulk of retirement plan assets in this country. Moreover, it is difficult to see the Supreme Court rigidly adhering to Thole in other defined benefit plan situations, since the funded status of a defined benefit plan can change quickly (as, for example, in the airline and steel industry bankruptcies). Moreover, there often is egregious self-dealing in investments, such as financial institutions using their own funds and services for their employees’ retirement plans. If, however, a challenge is brought when a defined benefit plan is well-funded, then that plan’s fiduciaries would likely be able to escape review of their investment decisions under Thole.

The timing of bringing lawsuits against plan fiduciaries is the central question of the last significant employee benefits case of the 2019-2020 term, Intel Investment Policy Committee v. Sulyma. ERISA has a six-year statute of limitations for fiduciary breaches, unless (a) the plaintiff has “actual knowledge” of a breach, which shortens it to three years; or (b) the defendant fraudulently conceals the breach, which extends it beyond the normal 6-year period. Intel’s investment committee argued that the shorter 3-year limitation period should apply to plaintiff’s challenge to its investment decisions, because it disclosed all of them in documents sent or available to the plaintiff. In a unanimous decision written by Justice Samuel Alito, the Supreme Court disagreed, holding that “actual knowledge” meant either proof of actual knowledge or evidence strongly suggesting such knowledge.

Sulyma will prompt changes to retirement plans’ handling of disclosures, such as always using “read-receipt” electronic mail where possible under the U.S. Department of Labor (“DOL”) electronic disclosure rules. It also reinforces the best practice of the use of logs by in-house or third-party fund administrators to make a contemporaneous record of every participant call and its purpose.

All of these decisions together suggest the unpredictability of the current Supreme Court when it comes to employee benefits decisions. All four cases were authored by conservative Justices, yet two had more liberal, pro-participant outcomes. It also is likely that we have not heard the last word from the Court on the birth control coverage dispute in Little Sisters of the Poor. Benefit plan sponsors, fiduciaries, and professional advisors will need to remain ready for unexpected, and sometimes dramatic, shifts in the law every time this Court takes up a benefits case.