THE FIDUCIARY CORNER: The Truth, the Whole Truth, and Nothing But the Truth
Gregory L. Ash, Wednesday, March 01, 2006 | Filed under: ERISA Litigation, Fiduciary Duties, Participant Communications
When ERISA fiduciaries speak, they must recognize that what they say, and how they say it, will be held to a higher standard than ordinary speech. This is because ERISA imposes special rules governing the manner in which information about benefits is communicated. Although courts disagree about the scope of this duty of disclosure, it is well established that communications must give participants information that is both accurate and sufficiently detailed to allow them to make informed decisions.
When ERISA fiduciaries speak, they must recognize that what they say, and how they say it, will be held to a higher standard than ordinary speech. This is because ERISA imposes special rules governing the manner in which information about benefits is communicated. Although courts disagree about the scope of this duty of disclosure, it is well established that communications must give participants information that is both accurate and sufficiently detailed to allow them to make informed decisions.
A plan sponsor in North Carolina learned this lesson the hard way. When the sponsor sold a division, company officials told affected employees that if they went to work for the purchaser, the sponsor would ensure that they were given the same retiree health benefits to which they would have been entitled under the sponsor’s plan. What the sponsor didn’t say was that its obligation to provide those benefits would cease if the purchaser went bankrupt. And, of course, that’s exactly what happened. The court concluded that by failing to inform participants of this contingency, the plan’s fiduciaries provided “incomplete, inconsistent, or misleading” information, and thus may have violated their duties under ERISA. While fiduciaries are not required to inform participants of “every conceivable scenario” that would affect their benefits, they cannot withhold information about a substantial risk.