HR's Oral Representations Trump Summary Plan Description
(Published November 2,
2009)
Reprinted from PERSONNEL
LEGAL ALERT, a widely read employment law newsletter that
keeps HR executives up-to-date on the latest court cases, legal
trends, government regulations, and federal
legislation that affect the policies you write and procedures you
administer.
HR
talks to employees all the time. Beware of what you say regarding retiree
health benefits, because such talk could be considered a fiduciary act. If HR
is considered a fiduciary and materially misrepresents benefits, the company
may be bound to a promise to pay it never intended to make, maybe for years to
come. The summary plan description (SPD) doesn't necessarily trump those oral
misrepresentations.
Case
in point: In
meetings hosted by HR, employees were informed that if they retired before a
certain date, they would, essentially, receive affordable health benefits for
life. Notwithstanding these statements, the company reserved the right to
change its retiree health benefits plan. While HR knew about this reserve
clause, it never came up in the meetings. The reserve clause was included in an
SPD, which retirees customarily received when enrolled in the retiree health
benefits plan. It was clear from the questions HR fielded that employees were
confused about retiree health benefits.
The
company eventually changed its retiree health benefits and retirees sued. Crux of their claim: The company breached its fiduciary duty by
misrepresenting their health benefits as affordable lifetime benefits, by
failing to adequately disclose the reserve clause, and by exploiting their
confusion.
Company's
defense: There
was no misrepresentation or failure to disclose because the reserve clause was
included in the SPD.
A
federal trial court and an appeals court ruled in favor of 12 of the 14
retirees and required the company to reinstate the benefits those retirees had
prior to the change. These factors contributed to HR's breach of fiduciary
duty.
. The company delegated to HR the
responsibility to discuss retiree health benefits. This was a fiduciary act
under the Employee Retirement Income Security Act (ERISA). Appeals court: Fiduciary duty extends to
particular people and to particular people performing particular
functions.
0. HR's statements were misleading
because it failed to inform potential retirees that the company could modify or
terminate their benefits, even though no changes were contemplated at the time
they retired. Further, the company knew employees were confused and that this
confusion would benefit the company financially.
0. The misrepresentation or
inadequate disclosure was material. A misleading statement or inadequate
disclosure is material if there is a substantial likelihood that it would
mislead a reasonable employee in making an adequately informed retirement
decision. Appeals
court: A
reasonable fiduciary would have foreseen that employees would rely on HR's
statements regarding affordable lifetime benefits in making their decision to
retire.
0. Employees detrimentally relied on
the misrepresentation or inadequate disclosure. Appeals court: This goes beyond just the
decision to retire. Retirees, for example, may have turned down other jobs or
failed to buy supplemental health insurance. (Adair v. Unisys Corp., 3rd Cir.,
Nos. 07-3369, 08-3025, and 08-3545, 2009)
Content
and Context Count
Is
every conversation you have with employees regarding benefits a fiduciary act?
Probably not, but you're better off proceeding as if it was. Especially in
stressful situations, such as corporate mergers or involuntary terminations,
employees may not really hear what you're saying.
Do ensure that all HR staff
members who are responsible for presenting benefits information are adequately
trained.
Don't sugarcoat benefits. If the
company has reserved the right to change or terminate benefits say so, and
repeat yourself. Don't rely on the SPD to do your communicating for you.
Do keep records of who held
meetings with whom, and when. After-action memos should summarize these
meetings. Think about recording them, as well.
Don't hold meetings without the
paperwork. Distribute SPDs and other documents to attendees. Also, highlight
reserve clauses and other important information.
Do have attendees acknowledge
that they received these documents.
Do encourage employees to seek outside retirement advice, and give them ample time to do so.