BREAKING FIDUCIARY
ISSUES
By Richard L. Menson and
Sally Doubet King
Who Is A Fiduciary?
• Fiduciary Status
Pegram v. Herdrich, 120 S. Ct. 2143 (2000).
Disclosure
• Duty to Disclose
– Future Changes
• Inquiry
• Serious Consideration
Bins v. Exxon Company USA, 2000 US App.
LEXIS 19080, (en banc) (2000); Fischer v.
Philadelphia Elec. Co., 96 F.3d 1533 (3rd Cir.
1996); Pocchia v. NYNEX Corp., 81 F.3d 275
(2nd Cir. 1996), cert. denied, 117 S. Ct. 302
(1996).
Disclosure
• Duty To Disclose
– Referral Minimization Incentive
Programs
– Negative Tax Consequences Regarding
Various Forms Of Benefits
Metzler v. Solidarity of Labor Organizations Health
and Welfare Fund, 1998 U.S. Dist. LEXIS 12565
(S.D.N.Y. 1998); Ehlmann v. Kaiser Foundation
Health Plan, 1998 U.S. Dist. LEXIS 13326 (N.D. Tex
1998); Farr v. U.S. West Communications, Inc., 1998
U.S. App. LEXIS 12657 (9th Cir. 1998); Shea v.
Esenten, 107 F.3d 625 (8th Cir. 1997).
Disclosure
• Voluntary Disclosure
– Advice About Plan Options Or Coverage
• Complete And Accurate
Bins v. Exxon Company USA, 2000 US App.
LEXIS 19080 (en banc) (2000); Wayne v. Pacific
Bell, 189 F.3d 982 (1999); Farr v. U.S. West
Communications, Inc., 1998 U.S. App. LEXIS
12657 (9th Cir. 1998); Librizzi v. Children’s Mem.
Medical Center, 134 F.3d 1302 (7th Cir. 1998),
reh. denied, 1998 U.S. App. LEXIS 5740 (7th Cir.
1998).
Disclosure
• Voluntary Disclosure
– Statements About Security Of The Plan
• Truthful
Librizzi v. Children’s Mem. Medical Center, 134
F.3d 1302 (7th Cir. 1998), reh. denied, 1998 U.S.
App. LEXIS 5740 (7th Cir. 1998); Varity v. Howe,
116 S. Ct. 1065 (1996).
Provide Documents
• Duty To Provide
– Formal Or Legal Documents About The
Plan And Benefits
ERISA Section 104(b)(4); Franklin v. First Union
Corporation, 84 F.Supp. 720 (2000); Kerr v. Charles
F. Vatterott & Co., 184 F.3d 938 (1999); Faircloth v.
Lundy Packing Co., 91 F.3d 648 (4th Cir. 1996), cert.
denied, 117 S. Ct. 738 (1997); Hughes Salaried
Retirees v. Administrator of Hughes Non-Bargaining
Retirement Plan, 72 F.3d 686 (9th Cir. 1995), cert.
denied, 116 S. Ct. 1676 (1996). DOL Prop. Reg.
Section 2520-102.3.
Provide Documents
• No Duty To Provide
–
–
–
–
–
–
Tax Qualification Letters
Bonding Policies
Appraisal Reports Or Valuation Reports
Meeting Minutes
List Of Participants
Claim Forms
Allinder v. Inter-City Products Corp., 1998 U.S. App.
LEXIS 18321 (6th Cir. 1998); Faircloth v. Lundy
Packing Co., 91 F.3d 648 (4th Cir. 1996), cert.
denied, 117 S. Ct. 738 (1997).
Duty To Diversify
• Factors To Consider Re Extent Of
Duty
–
–
–
–
Purpose Of The Plan
Amount Of Plan Assets
Financial And Industrial Conditions
Type Of Investments Involved
Franklin v. First Union Corporation, 84 F.Supp. 720 (2000);
Bussian v. RJR Nabisco, Inc., 2000 US App. LEXIS 19839
(2000).
Duty To Diversify
• Factors To Consider Re Extent Of
Duty
– Distribution As To Geographic Location
– Distribution As To Industries
– Dates Of Maturity
Metzler V. Graham, 20 EBC 2857 (5th Cir. 1997); In
re Unisys Sav. Plan Litigation, 74 F.3d 420 (3d Cir.
1996), cert. denied, 117 S. Ct. 56 (1996).
Conflict Of Interest
• Minimum Duty
– Secure Independent Assessment Or Valuation
– Investigate The Expert’s Qualifications
– Provide Expert With Complete And Accurate
Information
– Engage A Second Firm To Assist In Review Of
Assessment If Necessary
Harris Trust and Savings Bank v. Salomon Smith Barney, 120 S. Ct.
2180 (2000); Owen v. Soundview Financial Group, 2000 US App.
LEXIS 4321 (2000); Bussian v. RJR Nabisco, Inc., 2000 US App.
LEXIS 19839 (2000); Howard v. Shay, 100 F.3d 1484 (9th Cir. 1996),
cert. denied, 117 S. Ct. 1838 (1997); Metzler V. Graham, 20 EBC
2857 (5th Cir. 1997).
Conflict Of Interest
• Remedy Available
– Against Non-fiduciary Party In Interest
Who Knowingly Participates In A
Fiduciary Breach
Harris Trust and Savings Bank v. Salomon Smith
Barney, 120 S. Ct. 2180 (2000); LeBlanc v. Cahill,
1998 U.S. App. LEXIS 18542 (4th Cir. 1998).
Liability For Actions Of Others
• Agents
– Specific Authority To Speak
– Participants Rely On Agent For Information
• Benefits Counselors
– Provide Inaccurate Or Incomplete Information
• Negligence in Hiring/Training NonFiduciary Agents
Malone v. Commonwealth Edison Co., 1999 US Dist. LEXIS
16172 (1999); Schmidt v. Sheet Metal Workers’ National Pension
Fund, 128 F.3d 541 (1997); Estate of Becker v. Eastman Kodak
Co., 1997 WL 400787 (July 19, 1997) (2nd Cir. 1997); Taylor v.
The Peoples Natural Gas Co., 49 F.3d 982 (3rd Cir. 1995).
Settlor Or Fiduciary?
• Settlor Actions
– Adopt Plans
– Terminate Plans
Hamilton v. Allen-Bradley Company, 217 F.3d 1321 (2000);
Franklin v. First Union Corporation, 84 F.Supp. 720 (2000);
Hunter v. Caliber System, Inc., 220 F.3d 702 (2000); CurtissWright Corp. v. Schoonejongen, 115 S. Ct. 1223 (1995).
Settlor Or Fiduciary?
• Settlor Actions
– Modify Plans
• Surplus Distrubition Criteria
• Early Retirement Package
– Waiver Requirement OK
– Differentiation Based Upon Risk Of Job Elimination
OK for Single Employer Plans
Walling v. Brady, 1997 WL 545795 (July 30, 1997) (3rd Cir.
1997); Lockheed v. Spink, 116 S. Ct. 1783 (1996); Siskind
v. The Sperry Ret. Prog., Unisys, 47 F.3d 498 (2nd Cir.
1995).
Settlor Or Fiduciary?
• Fiduciary Actions
– Amend Plan To Affect Allocation Of
Asset Pool
– Choose Annuity Provider
Jacobson v. Hughes Aircraft Co., 105 F.3d 1288 (9th Cir.
1997), cert. granted, 118 S. Ct. 1558 (1998); Abbott v.
Pipefitters Local Union No. 522, 94 F.3d 236 (6th Cir. 1996),
cert. denied, 117 S. Ct. 948 (1997); Waller v. Blue Cross of
California, 32 F.3d 1337 (9th Cir. 1994).
Administrator Not Fiduciary
• Re Actions Of Investment Manager
• Re Participant Directed Voting Of
Shares
Bussian v. RJR Nabisco Inc., 2000 US App. LEXIS 19839
(2000); Pegram v. Hendrich, 120 S. Ct. 2143 (2000); Beddall v.
State Street Bank and Trust Co., 137 F.3d 12 (1st Cir. 1998);
Herman v. Nationsbank Trust Co., 126 F.3d 1354 (11th Cir.
1997), reh. denied, 135 F.3d 1409 (11th Cir. 1998).
Attorney-Client Privilege
• Does Not Extend To Implementation
Of Amendments
Fischel v. The Equitable Life Assurance, 191 F.R.D. 606 (2000);
In re Long Island Lighting Co., 129 F.3d 268 (2nd Cir. 1997).
Liability For Breach Of
Fiduciary Duty
• To Plan
• To Individuals
• Civil Penalties
Rodrigues v. Herman, 1997 WL 469680 (Aug. 19, 1997) (9th Cir.
1997); Varity v. Howe, 116 S. Ct. 1065 (1996).
Plan Interpretation
• Rules Of Interpretation
– Ordinary Meaning Of Terms
– In Harmony With Plan As A Whole
– May Look To Extrinsic Evidence If
Ambiguous
Bowerman v. Wal-Mart Stores, Inc., 2000 US App. LEXIS
21067 (2000); Barker v. Ceridian Corp., 1997 WL 523751
(Aug. 26, 1997)
(8th Cir. 1997).
Plan Interpretation
• Language In SPD Controls
– If Language Of SPD Conflicts With Language Of
Plan
– If SPD Silent Re Circumstances Resulting In
Prejudice
– Not If SPD Silent Re Grant Of Discretionary
Authority
– Not Re Reservation Of Right To Amend Or
Terminate
Adams v. Southern Labor Union Pension Trust Fund, 1999 US
App. LEXIS 30167 (1999); Sprague v. General Motors Corp.,
133 F.3d 388 (6th Cir. 1998), cert. denied, 118 S. Ct. 2312
(1998); Martin v. Blue Cross & Blue Shield of Virginia, Inc., 115
F.3d 1201 (4th Cir. 1997).
Eligibility
• Determination Must Be Based In
Plan Language
Vizcaino v. Microsoft Corp., 1997 WL 411663 (July 24, 1997) (9th
Cir. 1997) (en banc), cert. denied, 118 S. Ct. 899 (1998), on
remand, Vizcaino v. Microsoft Corp., 1998 U.S. Dist. LEXIS 2008
(W.D. Wash. Feb. 13, 1998), amended by, White v. United States
Dis. Court (In re Vizcaino), 184 F.3d 1070 (9th Cir. 1999), cert.
denied, 120 S. Ct. 844 (2000).
Standard Of Review
• If Discretionary Authority
– Arbitrary And Capricious
• If Discretionary Authority But Conflict
Of Interest
– Heightened Arbitrary And Capricious
McDaniel v. The Chevron Corporation, 203 F.3d 1099
(2000); Pinto v. Reliance Standard Life Insurance Co., 214
F.3d 377 (2000); Vega v. National Life Ins. Serv., Inc., 145
F.3d 673 (5th Cir. 1998); Buckley v. Metropolitan Life, 115
F.3d 936 (11th Cir. 1997); Firestone Tire and Rubber Co., v.
Bruch, 489 U.S. 99 (1989).
Standard Of Review
• If No Discretionary Authority
– De Novo
• Fact Findings Regardless Of
Discretion
– Arbitrary And Capricious
Kinstler v. First Reliance Standard Life Insurance Co., 181
F.3d 243 (1999); Kearney v. Standard Insurance Co., 175
F.3d 1084 (en banc) (1999); Pierre v. Connecticut Gen. Life
Ins. Co., 932 F.2d 1152 (5th Cir. 1991), cert. denied, 502
U.S. 973 (1991); Firestone Tire and Rubber Co., v. Bruch,
489 U.S. 99 (1989).
Claims Denial
• Claims Denial Letter Must Include
– Basis for Adverse Initial Decision -- Specific
Plan Provision
– Notice Of Right To Review File
– Notice Of Right To Have Decision Reviewed,
Procedure & Time Limit
– Necessity For Submitting Additional Documents
If Necessary
Harte v. Bethlehem Steel Corporation, 214 F.3d 446 (2000);
Brehmer v. Inland Steel Indus. Pension Plan, 114 F.3d 656
(7th Cir. 1997), aff’d, 114 F.3d 656 (1997); Kinkead v.
Southwestern Bell Tel. Co., 49 F.3d 454 (8th Cir. 1995).
The End