Confirming for plan sponsors the importance of maintaining and following plan procedures, the U.S. Court of Appeals for the Tenth Circuit upheld a 2010 decision by an Oklahoma district court that a 401(k) plan administrator did not abuse his discretion in deciding that a company 401(k) plan should not reimburse a participant for funds fraudulently withdrawn from his account by the participant’s ex-wife. We first reported on this case in the November 2010 Employee Benefits Developments. The case involves a former employee who failed to notify his 401(k) plan administrator of his new address following his divorce. As a result, the plan mailed to his marital address confidential instructions on how to access his account electronically. The participant’s ex-wife used the information to change the participant’s user ID and password and to subsequently withdraw all of the funds in the account. When the participant later discovered the withdrawals, he demanded that the plan restore the lost funds.

The plan administrator denied the claim on the grounds that proper security measures were in place, that the benefits were paid in accordance with plan terms and requirements, and that the loss of benefits was due to the participant’s own failure to comply with the address change requirements and to the fraudulent conduct of his ex-wife. The district court agreed with the plan administrator, finding that plan procedures obligating participants to provide updated mailing addresses and informing them that confidential account information would be sent to the addresses on file were clear and were followed. In its review of the plan administrator’s decision, the appeals court also agreed, finding that the plan administrator followed established procedures in making disbursement from the participant’s account and that the participant was fully informed of those procedures.

The appeals court also denied the participant’s claim that, because he personally never received his money, the plan violated the nonforfeiture provisions of ERISA. Finding that a nonforfeitable benefit is not the same as a guaranteed benefit, the court agreed with the lower court that the mere fact that the participant did not receive his benefits is “insufficient in itself to allow him recovery against the plan.” (Foster v. PPG Industries Inc.; 10th Cir. 2012)