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February 2016

Chicago Team Obtains Complete Dismissal of ERISA and Professional Negligence Lawsuit against Actuary Client

Chicago partner Jamey Hiller and associate Brian Roth obtained complete dismissal of a federal lawsuit filed against their actuary Client.  Plaintiff, a Chicagoland-based leading manufacturer of plumbing fixtures, brought the lawsuit as an employer and ERISA pension plan sponsor against the Client in the U.S. District Court for the Northern District of Illinois.  Plaintiff claimed the Client committed actuarial malpractice in advising it with liquidity funding issues related to two pension plans.  The complaint alleged violations of the Employee Retirement Income Security Act, 29 U.S.C. § 1001 et seq. (“ERISA”), breach of contract, and professional negligence.  For these violations, Plaintiff sought recovery of fines/penalties, interest, and considerable attorneys’ fees and costs.
 
The Client provided actuarial services to Plaintiff’s defined pension contribution plans.  Federal law required these plans to have at least three years’ worth of liquidity. See 26 U.S.C. § 430(j)(4).  The law also required the Client to certify parts of annual reports that stated either that the plans were in compliance with applicable federal liquidity requirements, or that the plans had a liquidity shortage. See 29 U.S.C. §§ 1021(d), 1023(d).
 
Plaintiff alleged that the plans began experiencing liquidity shortfalls under the Client’s actuarial expertise and guidance, yet the Client allegedly failed to notify Plaintiff of the shortfalls or disclose them on annual reports.
 
Gordon & Rees filed a comprehensive motion to dismiss the complaint pursuant to Federal Rule of Civil Procedure 12(b)(1) and (6), arguing that the Client was not liable for breach of fiduciary duty under ERISA because actuaries fulfilling traditional actuarial roles are not ERISA plan fiduciaries and there is no private cause of action under ERISA against non-fiduciary professional advisors.
 
U.S. District Judge Charles Norgle agreed with Gordon & Rees and granted the motion to dismiss in its entirety.  The Court found that the Client did not have actual discretionary authority, control, or responsibility in administering the plans—even though Plaintiff exclusively relied on its expertise in funding the plans—to make it a fiduciary.  Although Plaintiff undoubtedly relied on Client's significant investment and funding advice to the plans, the Court found Gordon & Rees’s position more persuasive: the Client’s status as an expert consultant did not make it an ERISA fiduciary because it had no independent, unfettered control over the plans.  The Court agreed that an actuary providing a professional opinion about necessary pension plan funding levels that will be relied on does not elevate the actuary to a fiduciary.  The Court further agreed with Gordon & Rees that ERISA does not create a private right of action against non-fiduciary financial advisors, such as the Client.
 
The decision deepens the legal distinction between those actuaries that have managerial authority, control, or responsibility over ERISA plans and those that merely consult to such plans.  The result is actuaries and ERISA plans gain more certainty over risk management and indemnification for losses arising out of liquidity and funding shortfalls.
 

James B. Hiller
Brian Roth



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