A Clearly Written Plan Document Protects the Plan's Administrator from a Fiduciary Breach

By Alan M. Levy - Lindner & Marsack, S.C.

April 22, 2019

What happens when employee benefit plan participants are not accurately informed of their rights? Who is liable for an error or a failure to inform a participant or beneficiary about their eligibility for benefits? The best protection for a plan fiduciary is often a clear, well-written current plan document.

Employers sponsor employee benefit plans and typically appoint an owner or management official to be the plan’s official administrator. Insofar as that party controls collection, investment, or disbursal of a plan asset, he/she is a fiduciary. Third party administrators (“TPAs”) who perform day-to-day plan operations dealing with participants typically insist on administrative agreements which state that the plan sponsor – not the TPA – is the fiduciary who must act “with an eye single for the interest of the participants and beneficiaries.” Donovan v. Bierwirth, 680 F.2d 263, 271 (2nd Cir. 1962); ERISA, § 404(A)(1). A fiduciary risks personal liability if he/she causes a loss to a participant or beneficiary by failing to act “in accordance with the documents and instruments governing the plan.” ERISA, § 404(a)(1)(D). Two recent appellate decisions relied on adherence to those plan documents in dismissing breach of fiduciary duty allegations that participants and beneficiaries were not adequately informed of their benefit rights.

In Vest v. Resolute FP US Inc., 905 F.3d 985 (6th Cir. 2018) the United States Court of Appeals for the Sixth Circuit explained that a fiduciary may breach his/her duty to disclose plan benefits and rules if “(1) an early retiree asks a plan provider about the possibility of the plan changing and receives a misleading or inaccurate answer or (2) a plan provider on its own initiative provides misleading or inaccurate information about the future of the plan or (3) ERISA or its implementing regulations required the employer to forecast the future and the employer failed to do so.” Id. at 987. The surviving beneficiary in that case alleged a fiduciary breach because neither the TPA nor the fiduciary informed the deceased employee that he had a right to convert his group life insurance coverage to an individual policy when he ceased employment. The case was dismissed, in part, because the plan’s summary plan description gave sufficiently clear information to satisfy any notification obligation.

In DeRogatis v. Bd. of Trustees of the Welfare Fund of the IUOE Local 15, 904 F.3d 174 (2nd Cir. 2018), the Second Circuit reached a similar conclusion. The widow of a deceased employee alleged that two “non-fiduciary, ministerial employees” on the plan staff had given her husband incorrect information, causing her to receive less than maximum survivor benefits. Therefore, she claimed, the individual trustees should be held liable for a breach of their fiduciary duty because they failed to adequately supervise the plan employees’ work. The court rejected the trustees’ defense that they could not be liable for any unintentional misrepresentations made by the non-fiduciary administrative staff, but went on to rule against the widow because the:

“summary plan description (“SPD”) clearly communicated the eligibility requirements for the various pension and survivor benefits available . . . thereby satisfying the . . . fiduciary duty to provide complete and accurate information.”

Id. at 179.

These cases demonstrate the importance of clear, accurate, and timely plan documents. Whether or not the TPA or the office staff fail to explain rules and procedures fully and correctly, the participants and beneficiaries may and must rely on the information in the plan documents. So long as the documents received by the participants are clear and correct, the fiduciaries have satisfied their obligation and should not be personally liable for any misunderstanding about the documents’ statement of rights.

Should you have any questions about the obligations, duties, and protections of a plan fiduciary, or should your employee benefit plan documents need an update or a review, please contact me or another attorney here at Lindner & Marsack, S.C.