In Chapman v. Benefit Plan Administrators, the Court certified a class action against the Trustees, administrative agent and actuaries of the plaintiff’s pension plan, the Eastern Canada Car Carriers Pension Plan (the “Plan”). While the decision is a preliminary one to allow the claim to go ahead, it still acts as a caution to plan sponsors. The claim alleged that reduction of Plan benefits to address solvency concerns were negligent or in breach of trust, as the solvency issue had been exacerbated by granting of Early Retirement Benefits (“ERBs”). The plaintiff sought to certify for a class of members, former members and retired members of the Plan, excluding only those who had been trustees during the critical period.
Like many pension plans, the Plan allowed ERBs at 55 with requisite years of service and consent by the Trustees. It was allegedly their practice to grant consent to any qualified applicant. The plaintiff’s evidence, taken from the Plan’s actuarial reports, was that the Plan could afford this practice before December 31, 1999, but not thereafter. The plaintiff claimed that, despite this, the trustees continued to give consent to ERBs at the usual rate.
In 2006, the Trustees announced that they were ending the practice of granting consent to payment of ERBs. In 2007, they announced benefit reductions.
The essence of the plaintiff’s claim was that the defendants’ negligence and breach of trust in the granting of consent of ERBs between January 1, 2000 and March 13, 2006 caused about 1/3 of the Plan’s solvency deficiency. He sought to recover that portion of his benefit reduction.
The defendants argued that there was no claim against them because:
- Benefits were not guaranteed at a certain level and the Trustees had the power to amend benefits;
- The claim for damages based on the solvency test was flawed because that assessment, like any solvency valuation, is theoretical; and
- The class as a whole suffered no damages.
The court held it was not plain and obvious that a negligence claim could not succeed for lack of damages. The fact that Trustees have discretion to adjust trust funds does not guard them against claims for negligent misconduct in doing so. The damages in the claim were not for theoretical solvency deficiency – they are for actual reduced benefits. The fact that some class members will have received ERBs did not make the claim a “zero sum”.
Regarding the duty of care owed by the Plan administrative agent (“BPAL”) to the beneficiaries, the court considered past cases and concluded that an administrative agent may be found to have a common law duty to beneficiaries, depending on the court’s factual findings about the role played and functions assumed by the administrative agent with respect to the pension plan. The court found that there were sufficient allegations of fact about the BPAL’s managerial or advisory role such that, assuming those allegations to be true, it could not be said that the claim against him could not succeed.
The Court also found that the class action met the other requirements for certification of the class action.
What this Means to You: Be Aware of Your Administrative Actions
Administrative actions by plan sponsors and administrative agents that incur additional cost may be considered when determining whether future benefits reductions are allowed. Plan sponsors and their agents have contractual and fiduciary duties in the administration of pension plans. Failure to meet those obligations may trigger liability of the plan sponsor and its agents when they make amendments to the plan. The decision could be an example of the conflict between the “two hats” worn by a plan sponsor as administrator versus as sponsor. While the duties of an employer as plan sponsor when it decides to amend a plan and as administrator of the plan have been distinguished, the failure to comply with fiduciary duties as administrator may impact the broader discretion that an employer has as plan sponsor.