State Law Pension Claims Not Pre-empted by ERISA

May 20, 2003 ( - A pension fund's state law claims for negligence against an actuary whose error in judgment resulted in the underfunding of the pension plan is not preempted by ERISA.

Since ERISA’s equitable solutions often do not provide make-whole relief, not allowing trustees of a pension fund remedies under state law would deny them a chance to make up shortfalls, a result that was probably not intended by Congress, the 2nd US Circuit Court of Appeals ruled in Gerosa v. Savasta, according to Washington-based legal publisher BNA.

>In reversing and remanding the earlier decision of the US District Court for the Southern District of New York, US Circuit Judge Robert Katzmann, writing for the court, said the appeals court opinion joins “a chorus of the Courts of Appeals in ruling that ERISA does not pre-empt ‘run-of-the-mill’ state law professional negligence claims against non-fiduciaries.”

Plan Underfunded

>The Cement Masons Local 780 Pension Fund hired Savasta and Co. to perform actuarial services for its defined benefit pension plan. Savasta made a recommendation in 1996 that the plan increase benefits payable to participants and beneficiaries due to the plan’s perceived overfunded status.   However, one year later, the actuaries discovered that plan was in fact underfunded and now had insufficient assets to cover the cost of all vested benefits.

>Savasta was sued by the fund’s trustees under both ERISA and various state statutes for breach of contract.   Savasta moved to dismiss the claims, arguing that ERISA did not permit lawsuits against actuaries and that the fund’s state law claims were preempted by ERISA.

>The lower court denied the motion to dismiss, finding the trustees had a cause of action against the actuary under ERISA. In so ruling, the district court acknowledged that the actuary involved in the case was not a fiduciary under ERISA and was not being sued for breach of fiduciary duty. The district court dismissed the fund trustees’ state law claims, finding they were pre-empted by ERISA.

>Both the trustees and the actuaries then filed appeals. Savasta claimed that the remedy sought by the fund trustees, an order directing Savasta to reimburse the fund for the shortfall the pension fund will experience as a result of the actuary’s failing to properly perform its duties, was not available under ERISA. The fund trustees appealed the part of the order dismissing its state law claims as pre-empted by ERISA.

Appellate Decision

>The appeals court said the core of the dispute was not whether ERISA authorized a lawsuit against Savasta, but whether the remedy the fund trustees sought fell within “appropriate equitable relief” under ERISA.   Since the fund trustees had no claim for restitution, but instead a claim for a predicted shortfall, there was no available remedy under ERISA, the court said in reversing the district court.

>Addressing the issue of pre-emption, the appeals court said “pre-emption is fundamentally a question of congressional intent.”   The court noted the trend in pre-emption, saying courts are reluctant to find that Congress intended to pre-empt state laws that do not affect the relationships among core ERISA entities: beneficiaries, participants, administrators, employers, trustees and other fiduciaries, and the plan itself. However, courts routinely find that malpractice or negligence claims against non-fiduciary plan advisors, such as accountants, attorneys, and consultants, are not pre-empted.

>In addition, the court said, the possibility of state law actions, with their accompanying remedies, provided incentives to actuaries to perform properly. “Immunizing actuaries could harm the financial integrity of the plans Congress intended to protect,” the court added.

The case is Gerosa v. Savasta & Co., 2d Cir., No. 02-9005, 5/19/03.