If your company sponsors any plan covered by the Employee Retirement Income Security Act of 1974 (“ERISA”), extreme care must be exercised in all communications with and disclosures to participants to shield plan fiduciaries from claims arising from inaccurate or incomplete information.
Plans subject to ERISA include retirement plans, such as pension, profit sharing and 401K plans, as well as welfare benefit plans, such as health, disability and insurance plans.
A plan fiduciary is any person who exercises any discretionary authority or control regarding management of the plan or renders investment advice for a fee or other compensation, directly or indirectly, with respect to any monies or property of a plan. Plan trustees, administrators, and sponsors are easily identified as plan fiduciaries. However, a person who has not been named or identified in plan or other documents as a plan fiduciary may still be considered a fiduciary as long as ERISA requirements are met. Cases have held that brokers, insurance agents, or other persons who make investment suggestions to plan trustees may be plan fiduciaries even though no consideration is paid to them by the plan or its trustees for such suggestions. Company executives, human resource managers, and others have been found to be plan fiduciaries without even realizing it.
A plan fiduciary has a duty to meet a prudent person standard in carrying out his or her duties and must always act for the exclusive benefit of the plan and plan participants. This duty includes a continuing obligation to monitor the plan, plan investments and other plan fiduciaries. Failure to meet these duties and obligations may result in claims in which the fiduciary may be held personally liable for losses or damages incurred by the plan or plan participants.
Claims against fiduciaries may arise from plan amendments, terminations or underfunding, but most arise from benefits claims or claim denials. For example, in a recent case, an employee of an auto parts supplier who was suffering from leukemia entered a hospital for treatment. His family contacted the employer to determine whether the company medical plan covered the treatment. The HR manager advised the family that group coverage terminated with the employee’s resignation but failed to mention that COBRA coverage was available. Following the employee’s death, the supplier and HR manager were sued because incomplete information was provided in response to the family’s inquiry. The court concluded, however, that the HR manager was not personally liable because her responsibilities were strictly clerical or ministerial and did not establish the necessary discretionary authority or control to create plan fiduciary status. In addition, other communications, including the supplier’s employee handbook, accurately and fully advised the employee of his COBRA rights.
In another recent case, a plan fiduciary was held liable for a benefits claim that arose following a participant’s retirement. In this case, the participant accepted an early retirement offer which included erroneous benefits calculations posted on the employer’s website. The fiduciary could have avoided liability if appropriate disclaimers or qualifications were made to advise the retiree the calculations on the website were for illustrative purposes only and that actual benefits were subject to final determination in accordance with plan provisions.
If you desire further information or assistance in evaluating potential fiduciary status, or means of avoiding fiduciary liability, please do not hesitate to contact us.