Sixth Circuit: Plan Fiduciary Reasonably Relied On Benefit Calculations In Communicating To Participant

by Proskauer - Employee Benefits & Executive Compensation Blog
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The Sixth Circuit recently rejected a participant’s claim that a benefit estimate should override the specific benefit promised under the terms of the plan. In Stark v. Mars Inc., No. 12-3956, 2013 WL 1908889 (6th Cir. May 9, 2013) (unpublished), the Sixth Circuit affirmed summary judgment in favor of the plan’s fiduciary committee. The plaintiff, Virginia Stark, filed her lawsuit seeking to continue receiving higher pension benefits that she had been erroneously receiving from the plan. When Stark first sought her benefit, she received a letter stating that she was entitled to commence her benefit and she obtained estimates of different benefit options she had under the plan. In each case, the benefit estimate she received included a disclaimer that the plan reserved the right to correct any errors. After Stark received several monthly payments, the plan’s service provider responsible for calculating her benefit determined that a system error caused a calculation error in several participants’ benefits, including Stark’s. After unsuccessfully pursuing her claim through the plan’s administrative claims process, Stark sued the company and fiduciary committee asserting a claim for equitable estoppel and breach of fiduciary duty. The district court granted summary judgment to the company and committee on the basis that, as a matter of law, Stark could not establish four elements of a successful equitable estoppel claim. The Sixth Circuit upheld that ruling and determined that her equitable estoppel claim could not proceed because she failed to provide any evidence of fraud, i.e., either intended deception or such gross negligence as to amount to constructive fraud, or that she had detrimentally relied on the committee’s misrepresentations. The Sixth Circuit also agreed with the district court that the fiduciary breach claim should be dismissed because any misrepresentation made by the committee was not made negligently. In this case, the service provider performed a ministerial function for the plan by managing software to calculate benefits according to unambiguous plan terms, the committee relied on the service provider’s program to provide the estimates, and the committee had no reason to doubt the service provider’s competence. Plan administrators often rely on the services and systems of third party service providers to communicate plan benefits. This case is a reminder that administrators need to monitor their systems closely and address any errors as quickly and reasonably as possible.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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