By Carol Buckmann
“Nobody ever complains about our communications.” “Nobody has sued us over our SPD.” These are the responses I often get when I tell vendors that their imprecise or abbreviated notices and SPDs expose my clients to litigation risk.
The employees I speak to don’t seem to understand that we have already had lawsuits over plan communications. I direct their attention to the CIGNA cash balance plan litigation in which CIGNA was ordered to provide benefits promised by its communications even though they weren’t provided in the plan document. Now I have another good example to give the drafters of sloppy communications. Dupont, Corteva and the Dupont Administrative Committee have just been sued by a retiree who seeks to turn his claim into a class action. The retiree claims that he was not informed that he was entitled to a subsidized pension prior to normal retirement date, and that his delay in applying for benefits caused him to permanently lose $135,000 in early retirement subsidies. The complaint calls this an illegal forfeiture.
The complaint is silent on whether eligibility for early retirement subsidies was clearly explained in the SPD as it should have been, but the accrued benefit statement that the retiree received is attached to the complaint. The statement advises that “You may call DuPont Connection at any time to receive an estimate of your benefit payable at a specified benefit commencement date”, but nowhere indicates that unreduced benefits are payable prior to normal retirement date. When the retiree filed a claim for the additional money, DuPont took the position that it did not pay benefits retroactively in the case of a late filing, and was not obligated to provide the retiree with notice of his eligibility for the subsidy.
The complaint also frames the communications failure and the denial of a retroactive adjustment as a fiduciary breach, and, in addition to monetary damages, seeks removal of the fiduciaries and an injunction ordering DuPont to change its practices going forward.
It is not at all clear that DuPont is correct in its position that it was not obligated to make disclosure here, as the summary plan description regulations require disclosure of the eligibility requirements to receive benefits. However, even if specific disclosure wasn’t required, the facts laid out in the complaint make a compelling case for using good communications to avoid litigation. Further, there are clearly some situations in which retroactive corrective payments are required to be made. As the complaint points out, there was a policy for recovering from participants overpayments mistakenly made to them, but it appeared that the retroactive adjustments only went one way.
The bottom line is that participants (and their lawyers) look to the plan communications when they are planning to sue. Fiduciaries should keep the following in mind---
· Defined benefit plan documents are usually over 100 pages and full of dense technical language. Participants may be entitled to ask for a copy of the plan, but their basic source of information about how the plan works is going to be the communications.
· Plan communications are not marketing materials. The SPD regulations require that provisions that limit or result in forfeiture of benefits be described.
· Never send out communications drafted by your vendor without reviewing them for accuracy, completeness and whether they are in plain English. Ideally, your ERISA attorney should also review them for legal compliance.
· Always put it in writing. Oral communications won’t leave a record for litigation.
· Never underestimate the power of good examples and sample benefit calculations to make rules clear.