A recent opinion issued by the U.S. Court of Appeals for the Second Circuit highlights the adverse consequences that may arise when an employer sponsor of a group health plan that is subject to ERISA fails to maintain a summary plan description of the plan (“SPD”) that is clearly written and that adequately and accurately describes the benefits available under the plan and the terms and conditions of coverage.
“In re: Emily DeRogatis” is a decision out of the U.S. Court of Appeals for the Second Circuit. Under the facts of this case, Mrs. DeRogatis, the widow of a deceased participant in a multiemployer group health plan, filed a breach of fiduciary duty claim under ERISA against the plan administrator, asserting that prior to her husband’s death, they were provided misinformation by two non-fiduciary, “ministerial” plan representatives (the “Representatives”) regarding the effect of Mr. DeRogatis’s retirement on their post-retirement health benefits under the plan (the “Retirement Question”).
The court first considered whether Mrs. DeRogatis’s breach of fiduciary duty claim could be sustained in light of the Representatives’ non-fiduciary, ministerial status. The court confirmed that the plan administrator acts as a fiduciary when it communicates with plan participants about plan benefits and has a duty to provide complete and accurate benefits information. The court further confirmed that the plan administrator may perform such fiduciary activities through ministerial agents, such as the Representatives, without converting those individual agents into ERISA fiduciaries. The court determined that, although the Representatives would not be personally liable under ERISA for fiduciary breaches on account of their misstatements, such misstatements could be attributable back to the plan administrator as fiduciary conduct.
Secondly, the court considered whether the SPD of the plan contained the requisite clear, complete, and accurate information regarding the Retirement Question, thus satisfying the plan administrator’s ERISA fiduciary duty with respect to the communication of benefits information to the DeRogatises. The court determined the SPD fell short in that regard based on the court’s analysis of various factors, including, among others, the SPD’s (i) length, which was 156 pages, without the inclusion of a table of contents or cross-reference index; (ii) illogical organization, which was based on alphabetical section names rather than by subject matter; (iii) opaque language regarding eligibility terms relevant to the Retirement Question; and (iv) misuse and inconsistent use of defined terms relevant to the Retirement Question.
The court held that, when considered together, (i) the misstatements by the Representatives regarding the Retirement Question and (ii) the deficient SPD, there remained an open question as to whether the plan administrator breached its fiduciary duty to provide the DeRogatises with adequate and accurate information about their benefits under the plan. Consequently, the court remanded the case back to the district court for further proceedings to address that question.
Notably, the court also reviewed a breach of fiduciary duty claim under ERISA based on the Representatives’ misstatements to the DeRogatises pertaining to benefits under a pension plan in which Mr. DeRogatis was also a participant but determined that Mrs. DeRogatis’s claim would not stand because the pension plan’s SPD adequately described the information relevant to the pension benefits in question, thereby satisfying the plan administrator’s attendant fiduciary duty.
Take-Aways for Employers
The court’s ruling is controlling only in the jurisdiction of the Second Circuit, which covers New York, Connecticut, and Vermont. Nevertheless, it highlights several points that all employer sponsors of ERISA plans should keep in mind to minimize the risk of an ERISA fiduciary duty breach when the inevitable misstatement or omission is made by a plan representative to an inquiring participant or beneficiary:
- Ensure the SPD contains all of the component information required by ERISA, including, for example, eligibility provisions, enrollment procedures, and circumstances that cause a loss of benefits or coverage, and that such information is written in a clear, complete, and accurate manner
- If the SPD (or any portion of the SPD) is prepared and maintained by a third-party service provider (such as a claims administrator), carefully review the SPD, particularly after the plan’s benefits or other terms and conditions of coverage are amended, to ensure that such amended provisions are described adequately and accurately in the SPD
- Ensure the SPD is drafted in a technically correct manner, such that defined terms, cross-references, indexes, etc. are used correctly and consistently (this is a common error)
- Confirm that the SPD is designed to be understandable to the average plan participant (as required by ERISA) and does not contain “opaque” language that could cause confusion or misunderstandings
- As appropriate, provide an excerpt of the relevant SPD provisions to participants or beneficiaries to accompany a plan representative’s verbal responses to questions regarding eligibility for coverage, or the terms and conditions of coverage, under the plan
In re: Emily DeRogatis, Nos. 16-977-cv, 16-3549-cv (2d Cir. Sept. 14, 2018)