Synopsis: A recent decision of the federal district court for the Southern District of New York warns ERISA fiduciaries that even innocent mistakes that do not misuse plan assets or unjustly enrich the fiduciaries can cause an unexpected and substantial expense to the plan, at least in the context of a less than clear summary plan description (SPD)

Chief Justice Roberts once famously said: “People make mistakes. Even administrators of ERISA plans.” Conckright v. Frommert, 559 U.S. 506, 509 (2010). He was right, of course, but the legal consequence, or not, of innocent ERISA mistakes remains a matter of some debate.

A recent decision on remand from the Court of Appeals for the Second Circuit presents a disturbingly common fact situation and legal analysis that shows, in one district judge’s view, how an innocent ERISA plan administrator mistake can lead to monetary relief.

In DeRogatis v. Board of Trustees of the Welfare Fund of the International Union of Operating Engineers Local 15, No. 14 Civ. 8863 (S.D.N.Y. June 13, 2019), Chief Judge McMahon denied the plan trustees’ motion for summary judgment on a claim for “surcharge” damages resulting from an innocent misrepresentation by a welfare plan benefits counselor. The counselor advised a beneficiary spouse not to submit her dying husband’s application for early retirement benefits out of a misplaced concern that doing so would cut off his medical benefits. (It would have cut off future medical benefit accruals, but not current eligibility). This failure caused her to lose $300 per month in additional surviving spouse benefits under a separate, but related, pension plan.

The surviving spouse sued the trustees for relief equivalent to the $300 per month benefit. She claimed a right to the money under the equitable theory of surcharge, described by the Supreme Court in CIGNA Corp. v. Amara, 563 U.S. 421 (2011).

Surcharge damages can be awarded upon a showing of “but for” causation, the court said — here, a showing that the misrepresenting benefits counselor, acting on behalf of ERISA fiduciaries, caused harm. No showing that the defendant fiduciary misused plan assets or was enriched by the breach was needed. Nor was a showing of detrimental reliance or an intent to deceive necessary.

The Court of Appeals had previously found that a genuine issue of material fact exists as to whether the SPD at issue clearly advised the surviving spouse (contrary to the oral misrepresentation) to submit her husband’s early retirement papers. So the trustees could not argue that the misrepresentation was immaterial, or did not cause the harm at issue.

The parties will now presumably proceed to a trial on the merits of the surviving spouse claim.

To be sure, the DeRogatis summary judgment decision is that of just one district judge in a case with unfortunate facts. But it, and decisions like it, increase plan sponsor expenses in administering ERISA plans. That in turn may reduce benefits, if employment market forces would allow it.

Benefit administration is necessarily complicated, and, being summaries, SPDs often do not contain complete plan details or instructions for every situation. Further complicating matters is the reality that reliance on oral representations or other informal guidance about what is in a plan, for many, is a necessary feature of hyper-paced modern living.

What is an ERISA fiduciary to do? There are ways to minimize risk, including (i) writing plans simply, succinctly and clearly, (ii) authorizing only knowledgeable, articulate and appropriately cautious benefits counselors to speak on behalf of the fiduciary, and (iii) recording all authorized oral or other informal communications. We are reminded about the admonition of one of our retired partners, who often said in the benefits plan context: “Write like you are writing a coloring book.” This is overstatement to be sure, but overstatement often best makes the point. Still, mistakes are sure to happen — one can only hope to minimize them.