Unintended Consequences of Individual Benefit Discussions
It happens all the time: Employees who are considering retirement ask HR staff about their post-employment benefits. If the answers those employees receive turn out to be incorrect, the responders may be accused of violating their fiduciary duties under ERISA, and the plans at issue may be required to pay unexpected benefits. This is why ERISA lawyers insist that on-line pension calculators and personalized benefit estimates include conspicuous disclaimers. A manufacturer in Ohio recently learned the value of those disclaimers after a federal court rejected estoppel and fiduciary breach claims asserted by a participant whose monthly retirement benefit turned out to be less than half of what she was told it would be. (Stark v. Mars, Inc., S.D. Ohio July 17, 2012)
The employee in this case worked for a division of Mars, Inc., and participated in its cash balance pension plan. In August of 2008 she received a letter from Mars and the third-party provider that maintained an on-line website, estimating that her monthly retirement benefit would be $5,365. The employee then contacted the Mars benefit service center to ask about the amount, which she believed to be too high. The benefits specialist confirmed the estimate, however, based on calculations done by the third-party provider. The employee retired in March of 2009.
After only four months, Mars contacted the employee and informed her that her benefit had been calculated incorrectly. Instead of a monthly benefit of $5,365, the employee was actually entitled to only $2,303 per month. The plan adjusted her benefit accordingly, and the participant filed suit.
She first alleged that she was entitled to rely on the incorrect estimate and receive the greater monthly benefit - a theory known in the law as promissory estoppel. In addition, she claimed that the erroneous on-line estimate and subsequent confirmation from the plan's benefits staff amounted to breaches of fiduciary duty under ERISA.
From the employer's perspective, this story has as happy ending. The court rejected both of the former employee's claims, finding that she was entitled to only the amount actually determined under the plan's terms, which was the lower monthly benefit.
Although the court acknowledged that plans or employers may sometimes be required to provide benefits that are not contemplated under the terms of the plan (if participants are given incorrect promises about those benefits), it found that the former employee in this case had failed to prove that she had justifiably relied to her detriment on the incorrect benefit estimate. Prominent disclaimers on the website and in the letter from Mars, along with the frequent use of the term "estimate" in the communications with the former employee, were persuasive to the court.
In addition, the court concluded that the benefits specialist who confirmed the erroneous benefit estimate was not an ERISA fiduciary, but instead was performing merely ministerial tasks. Thus, although the information she relayed was inaccurate, and could have amounted to a fiduciary breach if it had been communicated by a plan fiduciary, the absence of a fiduciary actor in this case doomed the employee's ERISA claim.
This Stark case serves as a reminder for any employer whose HR staff fields questions about benefits that the manner in which those questions are answered, and who answers them, are very important. First, appropriate disclaimer language should be included in all communications with plan participants, both oral and written. And second, anyone who might be considered an ERISA fiduciary - such as a member of the plan's administrative or appeals committee - should be extremely careful about answering questions concerning benefits.
Gregory L. Ash, Partner
Spencer Fane Britt & Browne LLP