What happens if the people in control of an employee benefit plan’s assets make decisions that benefit themselves at the expense of the plan participants? What if they are lazy and don’t make decisions based on a reasoned, researched, thoughtful process? How are they held accountable?
Under ERISA, an employee benefit plan’s assets are meant to be held in trust for the use of the plan participants and their beneficiaries. The people who manage those assets, have the authority to determine who is eligible for benefits under the plan, and make determinations on claims submitted to the plan are plan fiduciaries and they owe fiduciary duties to the plan’s participants and beneficiaries.
An ERISA plan fiduciary must “discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries and for the exclusive purpose of providing benefits to participants and their beneficiaries and defraying reasonable expenses of administering the plan, with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use…” 29 U.S.C. §1104.
Loyalty and Prudence
These dual fiduciary duties are commonly referred to as the duty of loyalty and the duty of prudence. If a fiduciary acts in violation of his or her fiduciary duties, a plan participant can bring a lawsuit against that fiduciary to remedy the damage the fiduciary’s breach caused.
Examples of violations of fiduciary duty vary enormously. Examples include: tricking employees into switching to a different employer that would fail so that their benefits could be terminated, failing to properly enroll participants in benefit plans, making material misrepresentations about plan terms that are relied upon by employees, failing to give notice of right to convert a group policy to an individual one which caused the employee to lose coverage.
If a court determines a fiduciary has breached his or her duties, the remedy is equitable relief. Equitable relief is meant to fix the damage done by the fiduciary and make the plan participants whole, but not to punish the fiduciary. For example, if the fiduciary caused a plan participant to not be properly enrolled in the employer’s life insurance plan and the plan participant dies, the fiduciary may have to pay the amount of the life insurance benefits the participant’s beneficiary would have been due under the policy had he been properly enrolled. Remedies include ordering the fiduciary to stop breaching their fiduciary duties (injunction), requiring the fiduciary to do something he or she promised to do (equitable estoppel), paying earnings the fiduciary made because of the breach to the plan participant (disgorgement), or paying the participant money to compensate for the breach (surcharge).
At Kantor & Kantor, we represent plan participants in breach of fiduciary duty claims against their employers, plan insurers and administrators, or other fiduciaries who act in self-interest or imprudently. If you have questions about the treatment of your plan, please call Kantor & Kantor for a free consultation at 888-569-6013. You can use our online contact form as well.