The purpose of the Employee Retirement Income Security Act of 1974 (“ERISA”) is to benefit the interest of employees and their beneficiaries in employee benefit plans. ERISA governs the duties, both fiduciary and statutory, that the employer and insurer must follow. When an ERISA plan summary differs from the terms of the actual plan documents, that is a problem.
Section 502(a)(3) of ERISA permits employees denied benefits under a plan to bring a civil action to challenge that denial in federal court. 29 U.S.C. § 1132(a)(3).
What is an ERISA Summary Plan Document?
One of the primary ways an employee is able to better understand his or her plan is to review the summary documents, including the summary plan descriptions. While the statements do not constitute the terms of the plans for purposes of 29 U.S.C. § 1132(a)(1)(B), the communications made within those statements should be held as a “fiduciary communication to plan participants and selecting the information to convey through it is a fiduciary activity.” Stiso v. Int’l Steel Grp., 604 Fed. Appx. 494 (6th Cir. 2015).
Absent a request, it is rare the Plan is provided to the employee. Instead, a summary of plan benefits is provided to the employee per ERISA’s requirements. Under ERISA the summary:
SHALL BE WRITTEN IN A MANNER CALCULATED TO BE UNDERSTOOD BY THE AVERAGE PLAN PARTICIPANT, AND SHALL BE SUFFICIENTLY ACCURATE AND COMPREHENSIVE TO REASONABLY APPRISE SUCH PARTICIPANTS AND BENEFICIARIES OF THEIR RIGHTS AND OBLIGATIONS UNDER THE PLAN.
29 U.S.C. § 1022(a).
In the Sixth Circuit’s recent decision in Stiso, an employee and beneficiary under International Steel Group’s long-term disability insurance plan filed suit against the employer, and Metropolitan Life Insurance Company, the insurer, to recover a 7% per-year cost of living increase. The annual percentage increase to the long-term disability benefits was included in the Plan by the insurer, as follows:
Indexed PREDISABILITY EARNINGS MEANS your predisability earnings increased by 7%. THE FIRST INCREASE WILL TAKE PLACE ON THE DATE THE 13TH MONTHLY BENEFIT IS PAYABLE. SUBSEQUENT INCREASES WILL TAKE EFFECT ON EACH ANNIVERSARY OF THE FIRST INCREASE. YOU MUST HAVE BEEN CONTINUALLY RECEIVING MONTHLY BENEFITS UNDER THIS PLAN.
Id. (Emphasis in original).
The summary of the plan distributed to the employees by International Steel, used similar language regarding “indexed” earnings with a 7% annual increase:
THE PREDISABILITY EARNINGS ON WHICH YOUR LTD [LONG-TERM DISABILITY] REPLACEMENT INCOME IS BASED ARE indexed—THAT IS, increased annually BY A PERCENTAGE. AFTER YOU HAVE RECEIVED LTD BENEFITS OF [SIC] 12 MONTHS, your predisability earnings are increased by 7%. IF YOU CONTINUE RECEIVING LTD BENEFITS, YOUR PREDISABILITY EARNINGS FOR PURPOSES OF THE PLAN ARE increased 7% annually ON THE ANNIVERSARY OF YOUR PREVIOUS INCREASE.
Id. (Emphasis in original).
What Happens Under ERISA When Plan Summary Differs from Actual Plan Documents?
The Sixth Circuit reversed a ruling from the district court that dismissed the employee and beneficiary’s claim for relief for the promised increase in benefits finding that the summary plan description’s language would cause a plan participant to believe his disability benefit would increase by 7% annually. The Court held that:
[T]HE LANGUAGE REFERS ONLY TO AN INCREASE IN BENEFITS AFTER CONTINUALLY RECEIVING BENEFITS FOR A CERTAIN AMOUNT OF TIME. PLAINTIFF REASONABLY ASSUMED THAT THE ADJUSTMENT TO PREDISABILITY EARNINGS, INDEXED OR OTHERWISE, BY 7% ANNUALLY NECESSARILY INCREASES HIS MONTHLY BENEFIT BY THE SAME AMOUNT. THERE IS NO LIMITING OR QUALIFYING LANGUAGE, NOR DOES THE LANGUAGE REFER TO OTHER SECTIONS OF THE SUMMARY REGARDING ″WORK INCENTIVE″ OR ″WORKING WHILE DISABLED″ ON WHICH INTERNATIONAL STEEL RELIES TO RATIONALIZE ITS REFUSAL TO PAY THE 7% ANNUAL INCREASE. THE LANGUAGE USED WOULD OBVIOUSLY LEAD A BENEFICIARY LIKE PLAINTIFF REASONABLY TO EXPECT THAT HE WOULD RECEIVE A 7% COST-OF-LIVING INCREASE IF HE WAS UNABLE TO RETURN TO WORK DUE TO HIS DISABILITY.
Equitable claims under ERISA, like the breach of fiduciary action in Stiso, are governed by Section 502(a)(3), which rest upon the statutory obligations of a breach of “fiduciary responsibility.” In Stiso, the employee and beneficiary claimed that the employer breached its fiduciary obligation “by promising claims that were then renounced.”
An ERISA fiduciary has the following three broad duties:
- the duty of loyalty, which requires ″all decisions regarding an ERISA plan . . . be made with an eye single to the interests of the participants and beneficiaries;″
- the ″prudent person fiduciary obligation,″ which requires a plan fiduciary to act with the ″care, skill, prudence, and diligence of a prudent person acting under similar circumstances,″ and
- the exclusive benefit rule, which requires a fiduciary to ″act for the exclusive purpose of providing benefits to plan participants.″
James v. Pirelli Armstrong Tire Corp., 305 F.3d 439, 448-49 (6th Cir. 2002) (internal quotation marks omitted)
The Court in Stiso held that “[b]y furnishing plaintiff with a summary plan description that was misleading as to the benefits it intended to provide, regardless of whether the statements were made intentionally or negligently, the fiduciary duty owed plaintiff was breached.”
Who Owes A Fiduciary Duty to the Employee?
In addition to the employer, the insurer also owes a fiduciary duty to the employee because it exercises “control over the denial or payment of benefits under the plan.” An insurance company that administers claims for an employee welfare benefit plan who has authority to grant or deny the claims is a “fiduciary” under ERISA.
A fiduciary’s duties include the duty to exercise fiduciary functions for the exclusive purpose of providing benefits to participants and their beneficiaries.
In Stiso, the insurer had the authority to deny or plan claims and therefore owed the employee a fiduciary duty. The Court concluded that the insurer breached its duty by using a self-serving interpretation of the language in the summary plan description to deny relief to the employee. This was a breach of a fiduciary duty.
Employees must be mindful of the ERISA summary plan descriptions provided to them by their employers. Although the communications made by the employers and insurers in these descriptions are not the terms of the Plan itself, the plan descriptions must be written in a sufficiently accurate and comprehensive manner to apprise plan participants and beneficiaries of their rights and obligations under the plan. A failure to provide proper summary information violates ERISA as a breach of a fiduciary. ERISA, which governs employee benefit and retirement plans, provides a cause of action for an employee to challenge this denial in federal court.