Estates & Trusts – Page 2

Litigation Concerning an Executor’s Accounting

As discussed in a previous blog, prior to an executor making distributions from an estate he/she must produce an accounting which the beneficiaries of an estate are entitled to review. Provided that the accounting is acceptable to the beneficiaries, distributions can be made after the beneficiaries sign refunding bonds and releases, however, should there arise a dispute that cannot be resolved with regard to the accounting a beneficiary might decide to file suit. This blog shall discuss this general process.
In general, either the estate or the beneficiary of an estate can file suit during which the executor of the estate must render a formal accounting. Such a lawsuit would be venued in the county where the decedent passed away. During this lawsuit, the executor would file an accounting with the court which would list all assets of the estate, as well as all expenditures and liabilities of the estate. Exhibits to the executor’s accounting would include all relevant account statements, copies of any receipts with regard to expenses that were paid, as well as any other related documents which evidence expenses of the estate and payments by the estate concerning same. These accountings are typically presented in spreadsheet format with the relevant backup being referenced and attached thereto. Once the executor’s accounting is filed with the court, the county surrogate would review the accounting for accuracy and completeness. Moreover, the party contesting the accounting would be able to file exceptions to the accounting. What this means is that the party would state precisely what their objections are to certain expenses or other sections within the accounting. In response, the executor would have an opportunity to provide any necessary clarification in order to respond to such exceptions, and further, may provide additional receipts and documentation in order to address any such exceptions.
After the production of the accounting, and after exceptions are filed by the contesting party, and further, after the executor has responded to same, the matter would then be in a position for a trial to address any remaining disputed exceptions. At times, the court may permit depositions or other written discovery prior to a trial on the merits. Any exceptions that are not resolved during discovery would be carried forward towards trial on the merits. During such a trial, the court would review the accounting, any exceptions to same, and render findings of fact and law as to the validity of any such exceptions. The court’s decision would ultimately lead to the finalization of the accounting which might incorporate all, some, or none of the exceptions filed by the contesting party. Once this procedure is completed the estate would then be in a position to finalize the accounting and to commence with distributions.
There is no doubt that this is a complicated legal process and any party seeking to file an exceptions to an accounting should always be concerned whether the potential gain might be outweighed by the counsel fees and costs it would incur to proceed with such an action. Nonetheless, at times there may be no alternative but to file suit should the executor be guilty of misconduct which has wasted assets of the estate. As such, in deciding whether to pursue any such claim it is strongly suggested that a party consult with competent counsel prior to filing suit.

CFPB Dismisses Two Actions Against Student Loan Trusts and Subprime Auto Lender

The CFPB recently dropped two more lawsuits it brought under the Chopra administration—one involving a student loan securitization trust and the other regarding a subprime auto finance company. Both lawsuits included allegations of unfair, deceptive, or abusive practices (UDAAPs) in violation of the Consumer Financial Protection Act.
On April 25, the CFPB voluntarily dismissed its 2017 lawsuit against a group of pre-2008 student loan trusts. The Bureau alleged that the trusts had, via third-party contractors, engaged in unlawful debt collection litigation tactics involving private student loans. Specifically, the lawsuit alleged the student loan trusts (1) filed lawsuits without proper documentation, (2) litigated time-barred debts, and (3) engaged in deceptive collection practices. The Bureau alleged that the trusts used misleading or false legal filings to mislead consumers.
The parties had agreed to a $2.25 million settlement in January, which included obligations to adhere to compliance obligations and restrictions on future lawsuits, but in February, a group of investors filed an objection to the deal in February, arguing it was unclear whether the CFPB had authority to settle the case in light its suspension of activities. The joint stipulation filed by the Bureau and the trusts has led to its dismissal with prejudice.
On the same day, the CFPB moved to withdraw from a 2023 lawsuit it filed jointly with New York Attorney General Letitia James against a subprime auto lender. The complaint alleged that the company’s indirect lending model obscured finance charges and incentivized dealers to inflate loan amounts. Although New York did not oppose the CFPB’s exit from the lawsuit, it will continue to pursue the litigation independently.
Putting It Into Practice: As the CFPB continues to narrow its enforcement activity by withdrawing from prior lawsuits (previously discussed here, here, and here), UDAAP violations continue to be enforced by both state and federal agencies (previously discussed here and here). Financial institutions should continue monitoring both federal and state UDAAP activity and reassess enforcement exposure in areas involving third-party practices and complex product structures.
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Time for Some Spring Cleaning? Ombudsman’s Determination Shows Need to Press on With GMP Equalisation

With the Pension Schemes Bill on its way in “late Spring”, now might be a good time for trustees to take stock of their trustee agendas and to brush off some items that may have been left to gather dust. A recent Pensions Ombudsman determination serves as a useful reminder that, for most schemes, GMP equalisation is not yet done and dusted.
The determination concerned a former member of a pension scheme (Mr N), who had taken a transfer out of the scheme some 30 years earlier. His complaint related to seeking a recalculation of his transferred-out benefits in light of the requirement to equalise for GMPs.
The key takeaways from Mr N’s case are that:

Trustees should continue to progress their GMP equalisation projects diligently and promptly. Don’t put off collaborating with the employer or taking professional advice. It is important to formulate and implement an appropriate methodology.
GMP implementation involves many stages and will take some time to complete. The Pensions Ombudsman (TPO) made the point that GMP equalisation is a difficult and complicated project and it is important to ensure it is carried out correctly. TPO said that although it should not be unnecessarily delayed, it is understandable that it will take a reasonable amount of time to implement. Notwithstanding TPO’s comments, trustees should bear in mind that the longer it takes to carry out GMP equalisation, the more likely trustees are going to encounter complaints from members and other beneficiaries.
Good communication with those affected by GMP equalisation projects is paramount. If a member or, indeed, former member asks for an update on progress, provide it. As trustees are painstakingly aware, it is real people who are affected by a delay in the recalculation of benefits. During a cost of living crisis in particular, the uncertainty of being in long-term financial limbo can create anxiety, even if benefit adjustments are likely to be minimal and represent an improvement. Good communication is key.

A Bit of Background
The first Lloyds case in 2018 confirmed a requirement for schemes to equalise for the effect of GMPs. This decision left a lot of unanswered questions, some of which were considered in later judgments. In particular, the November 2020 judgment (Lloyds 3) dealt with the treatment of past transfers. In Lloyds 3, the court ruled that in the case of transfers made under the cash equivalent legislation, the trustee of the Lloyds schemes remained liable for a failure to pay the correct (i.e. equalised) cash equivalent transfer value amount. Note that the position was different where the transfer from the Lloyds schemes was as a result of a bulk transfer, or was a non-statutory individual transfer under the relevant Lloyds scheme rules.
How Was This Relevant to the Case of Mr N?
Mr N had taken a transfer out of his occupational pension scheme some 30 years earlier. It seems not at all surprising that the actual details of Mr N’s benefits were no longer available, although the scheme appears to have retained a record of the transfer out. The lack of data relating to his records formed part of Mr N’s complaint, along with a lack of a plan or timetable for carrying out GMP equalisation. While the pension scheme trustee of Mr N’s former scheme had provided updates to existing members about the Lloyds decisions and the steps that the trustee was taking, it had not, understandably, provided updates to past members.
What Did The Pensions Ombudsman Decide?
TPO agreed with the opinion of his Adjudicator, which was summarised in the determination. Mr N was awarded £500 for distress and inconvenience caused by the trustee’s maladministration. But what maladministration took place?
Lack of a Plan or Timetable for Carrying out GMP Equalisation
What you might expect to form the main basis for a finding of maladministration, did not. The Adjudicator and TPO agreed that in the circumstances of Mr N’s particular scheme, the events complained about were taking place in 2023 so five years since the passing of the first Lloyds decision in 2018 and three since Lloyds 3 and that was not an unreasonable period of time to take to resolve all the issues. The Adjudicator considered all the steps the trustee had taken and was taking to deal with GMP equalisation and thought that those measures (e.g. forming a joint working group with the employer and involving professional advisers to develop and adopt an appropriate methodology), comprised appropriate actions to address the issues. The timescales involved were not considered unreasonable in the circumstances.
Lack of Past Member Records
Likewise, there was no specific criticism of the lack of complete records in relation to Mr N. The Adjudicator noted that TPR guidance does require some limited record retention in relation to past members but, again, the Adjudicator was not so concerned with the retention (or lack of retention) of records in this particular case saying that this did not amount to maladministration. Significantly TPO said that Mr N had failed to show that he incurred any loss as a result of the perceived maladministration.
In case you were wondering, TPR’s record keeping guidance requires the retention of:

member’s name
transfer terms
name of the scheme into or out of which the member has been transferred
transfer date
date of receipt or payment of money or assets.

Lack of Communication with Mr N
This is the hurdle at which the trustee fell. While the Adjudicator acknowledged that it would be difficult for the trustee to easily establish communication with all members impacted by the review, in particular those like Mr N who left the scheme many years before, he considered that it nonetheless had a responsibility to attempt to do so and that it was unclear why the trustee failed to update Mr N, specifically, on progress when it was aware that Mr N was clearly concerned about progress.
In addition, TPO opined “Mr N originally contacted the trustee to ask how the [Lloyds 1] and [Lloyds 3] judgments affected him. Having started that line of communication with the trustee, and provided contact details, the trustee agreed to keep him updated on the progress of the project. However, it did not do so. Therefore, I agree that the trustee’s failure to keep Mr N informed of progress, as it undertook both to Mr N and to TPO to do, will have caused him unnecessary distress and inconvenience.” Mr N was awarded £500 for maladministration.
Some Final Thoughts
This determination, while recognising the complexity of GMP equalisation, does highlight the likelihood that the longer it takes schemes to implement GMP equalisation, the more likely it is that schemes will receive member complaints. Trustees should knock the cobwebs off their GMP equalisation plan and consider it afresh. Outstanding issues should be analysed and addressed, and advice taken where appropriate so that trustees can move forward with good quality data ensuring that members know where they stand in relation to their benefit entitlements.
And if that wasn’t a good enough reason to revisit their GMP equalisation plan, implementation will mean that trustees are one step closer to complying with their general code requirements to keep accurate and complete data, and they will be one step closer to being dashboards ready.
A final thought. In a recent speech at the Pensions Age Conference, Patrick Coyne, Interim Director of Policy and Public Affairs, said that improving data must be the first step to innovation in pensions. He commented on feedback that the pensions industry wants to increase the use of automation and pointed out that “if the data going into the system isn’t up to scratch, you’re automating rubbish.” Enough said!

Court Affirmed Probate Order On The Ownership Of Farm Equipment Which Depended On The Location Of The Equipment At The Time Of The Decedent’s Death

In Halderman v. Ivy, the decedent’s will stated: “I give, devise and bequeath my 66.977 acres located on FM 1848 in Freestone County, Texas, including all livestock and farm equipment located thereon to my two children . . . in equal shares; provided, however, if either [of the children] shall predecease me, then her share shall be distributed to the survivor of the two, per capita.” No. 08-24-00070-CV, 2024 Tex. App. LEXIS 7773 (Tex. App.—El Paso October 31, 2024, no pet. history). The plaintiffs filed a petition asking for a declaratory judgment that a truck, tractor, loader, and hay spear were farm equipment located on the farm at the time of the decedent’s death. The trial court conducted a bench trial at which six witnesses testified, and the dispute centered on the location of the tractor, loader, and hay spear on the day the decedent died. The trial court found that there was not sufficient evidence to establish that the equipment was on the property at the time of the decedent’s death.
The court of appeals affirmed. The appellant argued that the finding was contrary to a judicial admission that the equipment was on the property. The court of appeals held that even if there was a judicial admission, it was waived when the appellant allowed contrary evidence to be admitted without objection: “a party relying on a judicial admission . . . must protect the record by objecting to the introduction of controverting evidence and to the submission of any issue bearing on the facts admitted. Here, Ms. Halderman cannot maintain that Ms. Ivy’s attorney’s statements were a judicial admission that the tractor was on the farm on the day Mr. Boyd died, when evidence contrary to the purported admission was heard without objection.” Id.
The court then held that there was conflicting evidence, and that the trial court’s finding was supported by sufficient evidence:
Ms. Halderman did not object to testimony that the tractor was not on the farm the day Mr. Boyd died; therefore, the trial court was left with conflicting evidence. Deputy Leatherman testified that while he confined himself to where Mr. Boyd’s body was found on the farm, he did not recall seeing a tractor. Ms. Ivy testified that the tractor was at the house when Mr. Boyd died. Mr. Rodell testified that sometime after Mr. Boyd died, Ms. Ivy asked him to get the tractor, which was at her house, and move it to his house. On the other hand, Mr. Lathrop testified that he drove by Mr. Boyd’s house once or twice a week and he never saw a John Deere tractor on the property. Ms. Halderman testified she obtained the video taken by Deputy Leatherman and “a yellow wheel” could be seen in the video. However, neither the video nor any screenshots from the video showing “a yellow wheel” were admitted in evidence. After considering and weighing all the pertinent record evidence, we determine that the credible evidence supporting the finding was not so weak or so contrary to the overwhelming weight of the evidence that the finding should be set aside and a new trial ordered. Furthermore, we defer to the fact-finder’s credibility determinations and we may not substitute our judgment for that of the fact-finder, even if we would have reached a different conclusion.

Id.

Court Affirms A Trial Court’s Order Granting A Receiver’s Request To Sell Real Property

In Estate of Richards, a probate court entered an order appointing a receiver of estate property. No. 11-23-00031-CV, 2024 Tex. App. LEXIS 8626 (Tex. App.—Eastland December 12, 2024, no pet. history). The receiver filed a motion to approve the sale of real estate due to it being unproductive. A beneficiary objected to the sale and filed a supplemental application for declaratory judgment. She also argued that the sale of a tract of real property would be improper when she had filed pleadings seeking the partition of the property and distribution of estate property. The trial court approved the sale, and the beneficiary appealed.
The court of appeals first held that the appeal was timely, in part because the notice of appeal was filed within the fifteen-day grace period after it was due. The court of appeals also held that the appeal was not moot. The appellant argued that the appeal was moot because the sale was already consummated (the appellant let the property be sold without seeking a stay of the order). The court noted:
The conveyance of property can moot an appeal. Generally, “[w]hen a party appeals an order appointing a receiver or authorizing sale of certain property and the property has been sold, the appeal of the order becomes moot.” The principle behind this general rule is that the trial court is no longer able to afford relief if the property has been conveyed to a third party that was not subject to the jurisdiction of the trial court.

Id. However, the court of appeals held that the appeal was not moot because the sale was to a beneficiary, who was a party to the suit, and that the transaction could therefore be rescinded.
The court then addressed the beneficiary’s argument that the trial court erred in ordering the sale when she had a request to distribute the estate pending. Section 360.001(a) of the Estates Code provides that:
At any time after the first anniversary of the date original letters testamentary or of administration are granted, an executor, administrator, heir, or devisee of a decedent’s estate, by written application filed in the court in which the estate is pending, may request the partition and distribution of the estate.

Id. (citing Tex. Est. Code Ann. § 360.001). “By their express terms, Sections 360.001 and 360.002 permit a designated class of individuals to request the partition and distribution of the estate or a portion of the estate.” Id. The receiver argued that this provision did not apply to an independent administration. The court of appeals did not address this issue: “We will assume without deciding that Chapter 360 is applicable to this probate proceeding.” Id. The court then held that there was evidence that supported the trial court’s order:
Leinenbach is incorrect in her interpretation of Chapter 360 and the manner in which the trial court applied it with respect to the sale of the Homeplace. Even if one assumes that Chapter 360 is applicable to this proceeding, its provisions do not compel the partition in kind of the Homeplace based upon the mere request of a devisee. Section 360.002(c) provides that the court “may distribute any portion of the estate the court considers advisable.” The emphasized language indicates that the probate court has a measure of discretion to determine whether to order the partition in kind of an item of estate property. Additionally, Section 360.102 is prefaced on the following condition: “If the court determines that the estate should be partitioned and distributed.” Furthermore, Section 360.151 only requires the appointment of commissioners to partition estate property if “the court has not previously determined that the estate is incapable of partition.” Here, the trial court found that the Homeplace “is not capable of being partitioned in kind.” This finding by the trial court is adverse to Leinenbach’s contention that she was entitled to compel the partition in kind of the Homeplace under Chapter 360. However, Leinenbach has not challenged this finding on appeal or the evidence supporting it. When an appellant does not challenge the trial court’s findings of fact, those findings are binding upon both the party and the appellate court. Accordingly, we overrule Leinenbach’s sole issue on appeal.

Id.

Effective Now: The Maryland Secondary Market Stability Act of 2025 Enacted and Codifies a New Licensure Exemption

The Maryland Secondary Market Stability Act of 2025 (the “Act”) was enacted and became effective as of April 22, 2025. The Act codifies a licensure exemption reversing guidance from the Maryland Office of Financial Regulation (“OFR”), which would have extended mortgage lender and installment lender licensure requirements to persons (including passive trusts) that acquire or are assigned residential mortgage loans or installment loans secured by properties in Maryland. For more background on this topic, see our previous alerts: Even Passive Trusts?!? Maryland Extends Mortgage Lender Licensure Requirements to Holders of Residential Mortgage Loans and Maryland Extends Lender Licensure Enforcement Deadline Amid Industry Pushback.
The Act provides that mortgage lender and installment lender licensure requirements do not apply to a person that acquires or is assigned a mortgage loan or installment loan, so long as that person does not:

otherwise make mortgage loans or installment loans,
act as a mortgage broker,
act as a mortgage servicer, or
directly service or collect on any installment loan.

See, e.g., Md. Code Ann., Fin. Inst. § 11-102(B) (effective Apr. 22, 2025). We note that the language of § 11-102 is only present in the Senate version of the companion legislation, however, both the Senate and House bills were enacted.
The Act also clarifies that the licensure requirements do not apply to a “passive trust.” “Passive trust” means a trust, established under the laws of Maryland or any other state, that: (1) acquires or is assigned mortgage loans in whole or in part, (2) does not make mortgage loans, (3) is not a mortgage broker or a mortgage servicer, and (4) is not engaged in servicing mortgage loans. See Md. Code Ann., Fin. Inst. §§ 11-501(P); 11-502(b)(13) (effective Apr. 22, 2025).
The Act provides a welcomed exemption and regulatory certainty in response to the upheaval following the Estate of Brown decision and subsequent OFR guidance. Secondary market participants should carefully evaluate whether their activities fall within the new exemption and stay informed of further developments in Maryland.

Pushback of Deadline for SNFs to Submit Significantly More Detailed Ownership and Control Information in New “SNF Attachment” to CMS Form 855A

With newly confirmed Dr. Mehemet Oz at its helm, the Centers for Medicare & Medicaid Services (CMS) maintained but delayed the deadline for its requirement that Skilled Nursing Facilities (SNFs) to report significantly expanded information to CMS about the ownership, management and relationships with private equity (PE) and real estate investment trusts (REIT), and newly defined “additional reportable parties” (ADPs).
Scheduled to take effect on May 1, 2025, CMS recently announced a three-month reprieve, pushing the deadline back to August 1, 2025. This comes at the same time that CMS is seeking suggestions on lowering the Medicare regulatory burden and simplifying Medicare reporting requirements.
The delay announcement came as a surprise since, as recently as Friday, April 11, CMS reminded SNFs about the May 1 deadline that was fast-approaching for the Off-cycle SNF Revalidation of all Medicare-enrolled SNFs. Originally issued on October 1, 2024, every SNF was required to complete the new Form 855A that was designed to improve transparency and accuracy in SNF enrollment data under new reporting rules that were finalized by CMS in the Medicare and Medicaid Programs; Disclosures of Ownership and Additional Disclosable Parties Information for Skilled Nursing Facilities and Nursing Facilities; Medicare Providers’ and Suppliers’ Disclosure of Private Equity Companies and Real Estate Investment Trusts, on November 17, 2023.
Effective October 1, 2024, CMS added the new “SNF Attachment” to Form 855A, the Medicare Enrollment Application for Institutional Providers. All SNFs must now revalidate CMS enrollment by submitting the updated form by August 1, 2025. Medicare-enrolled SNFs should have received a revalidation notice by the end of the calendar year 2024. Even if the letter got lost in the mail, CMS expects every Medicare enrolled SNF to contact their Medicare Administrative Contractor (MAC) to ensure they revalidate their enrollment before August 1, 2025, or risk what will be serious consequences.
CMS set the bar for disclosures high, and the consequences will be swift and painful for SNFs that fail to report enrollment information fully and accurately. Penalties may include notice of dis-enrollment or revocation of Medicare enrollment, which could result in a lapse in enrollment, leaving a non-compliant SNF unable to submit claims or receive reimbursements.
The updated 855A requires SNFs to disclose all ownership interest and managing control information on the new SNF Attachment, rather than in Sections 5 and 6 as previously required. SNFs will no longer fill out Sections 5 and 6 and instead must check a box in each section which states “Check here if you are a Skilled Nursing Facility and skip this section.”
The new SNF Attachment requires far more information and detail than previously required by Sections 5 and 6. While some of the disclosures previously required in these sections have carried over to the new SNF Attachment, there are several additional requirements. SNFs must now disclose:

All members of their governing body irrespective of business type;
If the SNF is an LLC, all owners must be reported regardless of ownership percentage;
If the SNF is a trust, all trustees;
All Additional Disclosable Parties (ADPs); and
Certain additional information about each ADP.

An Additional Disclosable Party (ADP) is defined broadly to include any person or entity that:

Exercises operational, financial, or managerial control over any part of the SNF,
Provides policies or procedures for any of the SNF’s operations,
Provides financial or cash management services to the SNF,
Leases or subleases real property to the SNF or owns a whole or part interest equal to at least 5% of the total value of property leased by the SNF,
Provides management or administrative services to the SNF,
Provides clinical consulting services to the SNF, and/or
Provides accounting or financial services to the SNF.

There is no minimum threshold for how long the ADP must have furnished the services, the extent of involvement with the SNF’s operations, or the volume of furnished services. If a person or entity performed any of the above-listed services, for any period of time, they must be disclosed as an ADP.
Furthermore, CMS has made it abundantly clear that SNFs should err on the side of disclosure if they are uncertain as to whether a party qualifies as an ADP. Additional information can be found in CMS Guidance for SNF Attachment on Form CMS-855A.
At approximately the same time SNFs were expected to be gathering the information to complete the new disclosures, CMS posted an appeal for regulatory relief titled “Unleashing Prosperity Through Deregulation of the Medicare Program Request for Information” (Medicare Deregulation RFI). Through this RFI, CMS asks for input “on approaches and opportunities to streamline regulations and reduce administrative burdens on providers, suppliers, beneficiaries, Medicare Advantage and Part D plans, and other stakeholders participating in the Medicare program . . . [in an] effort[ ] to reduce unnecessary administrative burdens and costs, and create a more efficient healthcare system. . .” Commenters are asked to identify “specific Medicare administrative processes, quality, or data reporting requirements, that could be automated or simplified to reduce the administrative burden on facilities and providers,” “changes [that could] be made to simplify Medicare reporting and documentation requirements without affecting program integrity,” and “documentation or reporting requirements within the Medicare program that are overly complex or redundant.” Some SNF industry stakeholders are looking at the RFI as an opportunity to get the Trump Administration to at least decrease the complexity of the increased SNF reporting requirements, if not eliminate as a redundant, duplicative and unnecessary administrative burden that will create financial strain on SNFs.

PBMs Score a Win in Federal Court Against State Regulation

A recent federal court decision has the potential to tip the balance in an ongoing series of skirmishes over state regulation of pharmacy benefit managers (PBMs).
In McKee Foods Corp. v. BFP Inc. d/b/a/ Thrifty Med Plus Pharmacy, the US District Court for the Eastern District of Tennessee declared that an “any willing pharmacy” requirement in Tennessee was preempted by the federal Employee Retirement Income Security Act of 1974 (ERISA), as amended. On one side, self-funded group health plans argue that ERISA allows them to comply with a single set of rules nationwide, rather than having to navigate a patchwork of different, overlapping, and sometimes conflicting state laws. On the other side are the states, which have a legitimate interest in ensuring prescription drug reimbursements are fair and reasonable and their citizens are protected from fraudulent, abusive, or misleading PBM practices. However, states have routinely misread a 2020 Supreme Court decision, Rutledge v. Pharmaceutical Care Management Association, to support extensive interference with the design and operation of employer-sponsored group health plans in a manner that may be preempted by ERISA.

In Depth

Enacted in 1974, ERISA made the regulation of employee benefit plans principally a matter of federal concern. The law broadly and generally preempts – or renders inoperative – state laws that “relate to” employee benefit plans. According to the Supreme Court’s Rutledge decision, ERISA preempts “any and all State laws insofar as they may now or hereafter relate to any employee benefit plan covered by ERISA.” To “relate to” an ERISA plan, a law must either have a “connection with” or “reference to” such a plan.

“Connection with” preemption arises when either a law requires providers to structure benefit plans in particular ways, or acute (albeit indirect) economic effects of the state law force an ERISA plan to adopt a certain scheme of substantive coverage.
“Reference to” preemption arises in a different set of circumstances, namely where a state’s law acts immediately and exclusively upon ERISA plans or where the existence of ERISA plans is essential to the law’s operation.

Citing Kentucky Association of Health Plans, Inc. v. Nichols, the McKee court held that Tennessee’s “any willing pharmacy” law had an impermissible connection with ERISA plans and was therefore preempted. In so holding, the court rejected the state of Tennessee’s reliance on Rutledge. Critically, Rutledge involved a form of cost regulation, not plan structure. By contrast, pharmacy networks – at issue in McKee – are plan structures.
McKee is consistent with the Tenth Circuit Court of Appeals decision in PCMA v. Mulready (now pending before the Supreme Court), which invalided an Oklahoma law compelling PBMs to comply with certain pharmacy network standards. The Tenth Circuit held that ERISA superseded the Oklahoma law because it generally compelled ERISA plans to structure benefits in certain ways. In reaching its decision, the Mulready court reviewed, summarized, and applied more than 20 years of Supreme Court jurisprudence, which can be summed up as follows: States have wide berth to regulate PBM pharmacy reimbursement rates and acquisition costs, but they may not interfere with plan operation and administration, including the design and structure of pharmacy networks.
Currently, fiduciaries and plan sponsors of self-funded group health plans with multistate operations are confronted with myriad conflicting and burdensome state PBM laws, as well as increased private plaintiff activity. Texas, Florida, and Arkansas are posing particular challenges at the moment; other states will likely follow. While MeKee is encouraging, it is of little help in the short run. To break the logjam, action is required, either by the Supreme Court or Congress.

ERISA in the Supreme Court: Implications of Cunningham v Cornell University

On April 17, 2025, the U.S. Supreme Court issued a unanimous opinion in Cunningham v Cornell University, addressing the pleading standard applicable to prohibited transaction claims under the Employee Retirement Income Security Act (ERISA).
Which Party Must Address Prohibitive Transaction Exemptions in a Motion to Dismiss?
Plan participants filed suit against plan fiduciaries, alleging that the fiduciaries had engaged in a prohibited transaction by retaining two of its recordkeepers and paying excessive recordkeeping fees to keep them. The question presented to the Supreme Court is an important procedural question: Who—at the motion to dismiss stage—had the burden of pleading and proving whether the service provider exemption applies?
The Supreme Court resolved a lower court split by ruling that it is not the participants’ responsibility to plead the absence of a prohibited transaction exemption. Instead, the plan sponsor must show that a prohibited transaction exemption applies as an affirmative defense. Exemptions are not—as the defense argued and the Second Circuit held—elements of the pleading, such that plaintiffs must demonstrate their absence to survive a motion to dismiss.
What are Prohibited Transactions and Why Are Exemptions Needed?
ERISA categorically bars certain “prohibited transactions” between a plan and a related party (a so-called “party-in-interest”) to prevent conflicts of interest subject to several detailed exemptions, which allow plans to interact or conduct business with a party-in-interest if certain requirements are met. Because of the extremely broad nature of the prohibited transaction rules, the retirement industry would have difficultly functioning without the prohibited transaction exemptions. For example, in the absence of the exemptions, virtually every payment of fees to a plan vendor for services would be a prohibited transaction. However, there is a commonly used statutory exemption for reasonable arrangements with service providers for the provision of necessary services as long as no more than reasonable compensation is paid.
Supreme Court Decision May Lead to More Litigation
As the concurring opinion noted, the motion to dismiss stage has become “the whole ball game” because the cost of discovery can often drive defendants to settle meritless suits based on purely financial considerations. The Supreme Court acknowledged that this lower standard for plaintiffs could open the floodgates to more litigation, and directed trial courts to use other methods and civil litigation rules to attempt to weed out meritless cases.
Recommended Actions
This is a procedural ruling steeped in technical principles of statutory construction and interpretation of civil litigation rules. Nonetheless, there is a simple takeaway for plan sponsors. The hurdle for participants to survive a motion to dismiss in a suit against plan fiduciaries just got easier, so it is more important than ever for plan sponsors to manage litigation risk by making themselves unattractive targets. This means plan sponsors and fiduciaries should focus on engaging in prudent, compliant and well-documented actions and plan administration processes, particularly in the areas of vendor selection and management and investment selection.

Taming the Tariffs: Employee Benefit Issues for Employers During Times of Economic Uncertainty – Group Employee Terminations

Many companies are scrambling to quickly assess how to reduce the business impact of the upheaval to U.S. manufacturing and trading with the recent onslaught of tariffs threatened or imposed by the United States and the related global response. Similar to the COVID-19 pandemic, employers may now be looking for ways to manage the impending financial impact of tariffs on their business, including trying to lower HR-related costs and obligations through larger-scale employee group terminations.
This article provides reminders of some of the employee benefits issues to consider if your company is considering group terminations as a way to tackle the business impact of tariffs. In our experience, employers often provide enhanced benefits for employees losing their employment as part of a group termination. While the enhanced benefits may add to the employer’s costs on a temporary basis, it is still less expensive in the long run than the ongoing costs of maintaining a larger active workforce.
Another cost-saving option an employer may consider is to reduce or suspend employer contributions to retirement plans, which is further discussed here.
This article does not address the employment aspects of a group termination, such as whether the group termination triggers federal or state WARN notice or other similar requirements and employers should consult their labor & employment counsel and advisors whenever considering a group termination of employees.
What Are the Impacts to Our 401(k) Plan for a Group Termination?
Vesting. When an employee terminates employment (whether in a single or group employee termination context), he or she will become eligible to receive a distribution of any vested benefit under the company’s 401(k) plan. While 401(k) plans rarely provide for full vesting when an employee experiences an employer-initiated termination of employment, if the group of terminated employees is large enough, then the 401(k) plan may experience a “partial plan termination,” which requires certain 401(k) plan accounts to become fully vested.
A 401(k) plan has a “partial plan termination” during a plan year if there is a significant change to the plan or a significant corporate event that affects the right of employees to vest in their plan benefits. While determining if a partial plan termination has occurred is a facts & circumstances test, current IRS guidance presumes that there is a partial plan termination when at least 20% of the 401(k) plan’s active participants experience an employer-initiated termination of employment (outside of a company’s “ordinary course” turnover) during a plan year or in connection with the same corporate event (e.g., a planned or coordinated reduction in force). When a partial plan termination occurs, the employer must fully vest any employee who left employment during the relevant plan year, including people who voluntarily left employment. There are several nuances to this analysis so we recommend that a company discuss any planned larger-scale reductions in force with its 401(k) plan recordkeeper and legal advisors to determine the application of the partial plan termination rules in that circumstance.
If a partial plan termination is not occurring, then you may also wish to consider whether to voluntarily vest 401(k) plan accounts for individuals affected by an employer-initiated group termination, provided the employee group is not disproportionately highly compensated (as defined under IRS rules). This will require a plan amendment and coordination with your 401(k) plan recordkeeper to administer the change.
Employer Annual Contributions. If your 401(k) plan provides employer contributions that require either a specific number of hours of service during the year and/or a last day of the year employment requirement as a condition for receipt of this contribution, you may wish to consider whether to waive those requirements for the employees affected by the group termination, provided the employee group is not disproportionately highly compensated. This will require a plan amendment; however, this plan provision need not be preserved in the plan going forward; for example, the amendment could be drafted to apply to employees experience a group termination only during a limited window of time (e.g., 2025) or so it applies only to terminations at a specific plant or location.
Eligible Plan Compensation. One other item to remember is that if severance benefits are provided to employees, severance pay may never be subject to 401(k) plan deferrals or, generally, be considered to determine employer contributions under a 401(k) plan. That contrasts with certain regular post-termination payments related to final pay or benefits for services provided (e.g., final paycheck or vacation cashout) that may be subject to 401(k) deferrals and related employer contributions, depending on how your 401(k) plan defines compensation. Coordinate with your 401(k) plan recordkeeper and payroll processers to make sure 401(k) plan deferrals and employer contributions are only applied to eligible compensation.
What About Severance?
Employers that either rarely offer severance benefits or that do so on an ad hoc basis will often adopt a more formal severance program in connection with group terminations. This can be especially helpful if there is an expectation that employees work through a specific date to receive severance; the promise of severance benefits can serve as a retention tool. Typical severance benefits include severance pay and sometimes outplacement benefits and subsidized COBRA premiums (see the next question for more about COBRA). Whether a severance program is considered a plan subject to ERISA rules depends on whether there is an “administrative scheme.” The rule of thumb is that if the severance benefits will be paid overtime under normal payroll practices, rather than in a lump sum, we recommend that the severance program be set up to be ERISA compliant. An ERISA compliant severance program needs to be in writing, include specific claims and appeals procedures, and provide a summary plan description (which can often also serve as the written plan document) to eligible employees. If the program covers over 100 employees, a Form 5500 would also need to be filed.
Unlike many ERISA benefits, there are no rules that require equal severance benefits, so highly compensated employees can receive richer severance benefits than lower-paid employees, or the benefits can vary by location or position. In addition, there is no legal requirement that the severance plan be continued indefinitely – it can remain in effect only for a finite period.
What Happens to Health Coverage for Employees Who Are Terminated?
In the normal course, terminated employees enrolled in an employer’s group health plan (whether that be medical, prescription drug, dental, vision, or health flexible spending accounts) can continue this coverage generally for up to 18 months under federal COBRA rules, or for smaller employers under state-specific “mini-COBRA” laws, by paying the full cost of such coverage.
Sometimes employers may choose (or be required under an employment contract or severance policy) to subsidize all or part of the terminated employee’s premium costs for COBRA continuation coverage. For example, you may let terminated employees continue to pay active employee rates for COBRA coverage. In that case, you need to be mindful of whether your health plan is a self-insured or fully-insured plan as there could be different tax reporting obligations on such subsidies based on how benefits are provided. If your health plan is fully insured, there are no tax consequences to the terminated employees because of the subsidized COBRA premiums. If your health plan is self-insured, however, and the subsidized COBRA premiums favor highly compensated employees, the amount of that subsidy may need to be treated and taxed as compensation. Note that if you choose to provide the subsidy as a cash payment regardless of whether the former employee spends it on COBRA coverage or otherwise, it is always considered taxable compensation even if they actually use it to buy COBRA coverage. Companies should take care to properly communicate, document, and tax report and withhold from any COBRA coverage subsidy benefits.
How Are Outstanding Stock Options or Other Equity Incentive Plan Awards Treated?
You will need to check the equity incentive plan documents and individual award agreements to properly determine any impact on outstanding awards in the event of an employee termination. In addition, you can’t stop there— you also need to make sure there are no other rules that may apply to an employee’s equity awards under an existing employment agreement, applicable severance policy, or any other individual contract. Unless the award provides for accelerated vesting on a termination of employment, any outstanding and unvested equity awards would typically be forfeited at termination of employment. In a group termination situation, employers often consider whether to provide for additional vesting if the plan or award agreement does not already require it. If additional vesting is desired, remember to check the equity plan or award agreement to determine the necessary process to approve the additional vesting, for example, whether approval of the board of directors or an officer is required to make that change.
Will the Company Need to Make Payments on Deferred Compensation Plans?
Possibly, depending on the terms of the deferred compensation plan. A termination from employment (called a “separation from service” under the Code Section 409A rules) is one of the permissible payment events under Code Section 409A for nonqualified deferred compensation plans. To the extent any terminated employees are participating in a deferred compensation plan, you will need to carefully review the plan and award agreements to determine any impact from the termination on vesting or payment obligations. If separation from service is a payment triggering event, the company will need to be ready to make those required payments, which will come from the company’s general assets unless the company has set up one of the limited ways that a company may set aside certain funds for deferred compensation obligations. The cash outlay for making these payments will need to be considered as part of the overall costs of a group termination.
Do the Same Considerations Apply for Employees Who Are Covered under a Collective Bargaining Agreement?
When considering employee terminations for any employees represented by a union, you should always first check the terms of the applicable collective bargaining agreements and consult with your labor advisors on the company’s obligations in connection with a group termination. While the summaries above do apply generally for employer-sponsored retirement and welfare benefits, there may be specific provisions in a collective bargaining agreement or under union-sponsored benefit plans that will require certain company actions or require the company to further bargain with the union in the event of a planned reduction in force.
Don’t Forget About Releases!
If you decide to provide enhanced benefits to employees in connection with a group termination, consider whether to condition those enhanced benefits on the impacted employees executing a general release of claims. It is difficult to condition enhanced 401(k) benefits on the provision of a release, but releases otherwise work well in connection with the other benefit enhancements discussed above. You should coordinate with your employment and benefits advisors for the appropriate form of any release of claims that employees will provide in connection with a group termination.

Not So Fast: DOL Releases Annual Funding Notice Guidance Just Before the Distribution Due Date

Takeaway

Plan administrators should review their plan’s 2024 annual funding notice against the model notice and determine whether their plan’s 2024 annual funding notice is compliant. If not, plan administrators are expected to take corrective action.

Court Reversed Order Holding That a Will Had Been Revoked Where There Was No Present Intent to Do So

In In re Estate of Wright, decedent’s son appealed an order finding that his mother died intestate. No. 13-23-00043-CV, 2024 Tex. App. LEXIS 8078 (Tex. App.—Corpus Christi November 21, 2024, no pet. history). The son alleged that on May 7, 2007, the mother executed a holographic will (2007 will) which had not been revoked. His brother filed an amended counter-application for probate of will in which he alleged that on July 20, 1993, the mother executed a will (1993 will) which had not been revoked. In his counter-application, the brother argued that the 2007 will was not valid because:
(1) [did] not purport to revoke the [1993 will] or any prior [w]ills, and could only be construed as a Codicil to the Will submitted herewith, (2) appear[ed] to be written on more than one occasion; (3) contain[ed] two separate dates[;] (4) contain[ed] a curving line over portions of its terms, which line is undated and unsigned; [](5) require[d] clarification as to the terms of the handwritten document itself, and more specifically the terms of the trust mentioned therein including the identity of its corpus, beneficiaries, and trustee(s); (6) was revoked by [Doris] in whole or in part because it indicates that it is “not right” [and] indicates the Decedent “will write new one[.]”

Id. The court held that the 2007 will was effective to revoke the 1993 will, but that the 2007 will was also revoked. So, the trial court held that the decedent died intestate.
The court of appeals reversed the trial court’s order, holding that the 2007 will had not been revoked:
As mentioned above, the trial court’s order concluded that “[Doris’s] May 1, 2007 Holographic Will was revoked by the January 16, 2014[] notations made and signed by [Doris] after her signature of the May 1, 2007 Holographic Will.” The order further concluded that Doris died intestate. In this case, the central dispute between the parties is whether Doris revoked the 2007 will with the language “Not right” and “Will write new one.”
Demry argues, among other things, that the language at issue is “patently not revocatory in nature” and “do[es] not rise to language upon which revocatory intent can be legitimately appended.” Neither of the parties have provided any case authorities holding the language at issue, or similar language, constitutes revocatory intent, and we have found none. Both parties cite to Dean v. Garcia, which concluded that the words “CANCILED [sic]” and “VOID” were “words of cancellation” sufficient to revoke a codicil. 795 S.W.2d 763, 764-66 (Tex. App.—Austin 1989, writ denied). Thomas argues that Dean is “illustrative of how few words are necessary to revoke a testamentary instrument.” However, Demry argues that the language at issue “does not come remotely close to the language in Dean” and does not consitute “present and clear revocative language.” We agree that the language “Not right” and “Will write new one” are not clear “words of cancellation” sufficient to revoke the 2007 will.
Demry further argues that the language “Will write new one” refers to “an intent to undertake an act in the future . . . and therefore do[es] not comply with the legal requirement that revocatory language must constitute a present intent to revoke.” “A present intent to change or revoke a testamentary instrument in the future cannot accomplish revocation of the instrument, nor is it evidence of the revocation.” Here, the language “Will write new one” cannot be reasonably interpreted to constitute a present intent to revoke the 2007 will. A liberal reading of the language, at most, suggests an intent to create a new will in the future, not an intent to revoke the current will wherein this language appears; therefore, we conclude that the “Will write new one” language did not accomplish the 2007 will’s revocation nor is it evidence of its revocation.
Thomas argues that the trial court properly considered extrinsic evidence to determine that Doris intended to revoke the 2007 will through the use of the disputed language. In order for consideration of extrinsic evidence to be proper, the trial court must have first found that the disputed language was ambiguous… As explained above, the disputed language does not constitute clear “words of cancellation” or contain a present intent to revoke the will; thus, we find no patent ambiguity. Similarly, we find no latent ambiguity because the words do not sensibly convey a present intent to revoke the will. Therefore, the trial court erred to the extent it found the disputed language ambiguous as a matter of law and when it considered extrinsic evidence to determine the meaning of the disputed language. Based on the foregoing, we hold that the trial court abused its discretion when it concluded that the disputed language revoked the 2007 will.

Id.