ERISA has numerous financial penalties that can impact businesses. While these are designed to drive behavior and serve as a deterrent, it also means that certain types of fiduciary mistakes can lead to the levy of monetary damages. A recent case found that even innocent mistakes can still result in such penalties.

DeRogatis v. Board of Trustees

The Southern District of New York recently focused on the common problem of human error and found that even seemingly innocent ERISA plan fiduciaries still find themselves facing fines. The case is 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). The order, written by Chief Judge McMahon, denied summary judgment for the plan on the grounds that the surcharge damages resulted from a mistaken representation by the welfare plan benefits counselor.

The counselor advised a spouse beneficiary that she should not submit an application for her dying husband to receive early retirement benefits. The counselor mistakenly believed that doing so would cut off the husband’s medical benefits. In truth, while filing for retirement benefits would have cut off future medical benefit accruals, it would not have changed eligibility for his current benefits. Because the spouse beneficiary did not file for her dying husband’s early retirement benefit, she then lost $300 per month of surviving spouse benefits that she would otherwise have been eligible to claim.

Application of CIGNA Corp. v. Amara

The spouse sued the plan trustees for relief in this amount under the “equitable theory of surcharge” elaborated by the Supreme Court in CIGNA Corp. v. Amara, 563 U.S. 421 (2011). Surcharge damages, according to CIGNA, are awarded when you are able to show “but for” causation. In this case, but for the advice of the benefits counselor, she would have acted otherwise; therefore, the counselor’s actions led to the harm. There is no need to show that the action was malicious, was a result of misuse by the fiduciary, or that the fiduciary was enriched in any way by the faulty advice.

This ruling means that the parties will now conduct the trial on the merits of the spouse’s claim. The ruling of the New York district court is something plan fiduciaries should pay close attention to, as it means they may find themselves responsible for repercussions from even innocent mistakes. Benefits plans can be complicated, and even the most educated individual could make an erroneous statement that someone relies upon to their detriment. While issuing standard advice in writing may help, and making a follow-up written note of all advice given orally creates a record, fiduciaries are still faced with greater risk and higher standards when they choose to give advice.