BREAKING FIDUCIARY ISSUES

By Richard L. Menson and Sally Doubet King

Who Is A Fiduciary?

• Fiduciary Status

Pegram v. Herdrich, 120 S. Ct. 2143 (2000).

Disclosure

• Duty to Disclose– Future Changes

• Inquiry• Serious Consideration

Bins v. Exxon Company USA, 2000 US App. LEXIS 19080, (en banc) (2000); Fischer v. Philadelphia Elec. Co., 96 F.3d 1533 (3rd Cir. 1996); Pocchia v. NYNEX Corp., 81 F.3d 275 (2nd Cir. 1996), cert. denied, 117 S. Ct. 302 (1996).

Disclosure

• Duty To Disclose– Referral Minimization Incentive

Programs– Negative Tax Consequences Regarding

Various Forms Of Benefits

Metzler v. Solidarity of Labor Organizations Health and Welfare Fund, 1998 U.S. Dist. LEXIS 12565 (S.D.N.Y. 1998); Ehlmann v. Kaiser Foundation Health Plan, 1998 U.S. Dist. LEXIS 13326 (N.D. Tex 1998); Farr v. U.S. West Communications, Inc., 1998 U.S. App. LEXIS 12657 (9th Cir. 1998); Shea v. Esenten, 107 F.3d 625 (8th Cir. 1997).

Disclosure

• Voluntary Disclosure– Advice About Plan Options Or

Coverage• Complete And Accurate

Bins v. Exxon Company USA, 2000 US App. LEXIS 19080 (en banc) (2000); Wayne v. Pacific Bell, 189 F.3d 982 (1999); Farr v. U.S. West Communications, Inc., 1998 U.S. App. LEXIS 12657 (9th Cir. 1998); Librizzi v. Children’s Mem. Medical Center, 134 F.3d 1302 (7th Cir. 1998), reh. denied, 1998 U.S. App. LEXIS 5740 (7th Cir. 1998).

Disclosure

• Voluntary Disclosure– Statements About Security Of The

Plan• Truthful

Librizzi v. Children’s Mem. Medical Center, 134 F.3d 1302 (7th Cir. 1998), reh. denied, 1998 U.S. App. LEXIS 5740 (7th Cir. 1998); Varity v. Howe, 116 S. Ct. 1065 (1996).

Provide Documents

• Duty To Provide– Formal Or Legal Documents About The

Plan And Benefits

ERISA Section 104(b)(4); Franklin v. First Union Corporation, 84 F.Supp. 720 (2000); Kerr v. Charles F. Vatterott & Co., 184 F.3d 938 (1999); Faircloth v. Lundy Packing Co., 91 F.3d 648 (4th Cir. 1996), cert. denied, 117 S. Ct. 738 (1997); Hughes Salaried Retirees v. Administrator of Hughes Non-Bargaining Retirement Plan, 72 F.3d 686 (9th Cir. 1995), cert. denied, 116 S. Ct. 1676 (1996). DOL Prop. Reg. Section 2520-102.3.

Provide Documents

• No Duty To Provide– Tax Qualification Letters– Bonding Policies– Appraisal Reports Or Valuation Reports– Meeting Minutes– List Of Participants– Claim Forms

Allinder v. Inter-City Products Corp., 1998 U.S. App. LEXIS 18321 (6th Cir. 1998); Faircloth v. Lundy Packing Co., 91 F.3d 648 (4th Cir. 1996), cert.

denied, 117 S. Ct. 738 (1997).

Duty To Diversify

• Factors To Consider Re Extent Of Duty– Purpose Of The Plan– Amount Of Plan Assets– Financial And Industrial Conditions– Type Of Investments Involved

Franklin v. First Union Corporation, 84 F.Supp. 720 (2000); Bussian v. RJR Nabisco, Inc., 2000 US App. LEXIS 19839 (2000).

Duty To Diversify

• Factors To Consider Re Extent Of Duty– Distribution As To Geographic

Location– Distribution As To Industries– Dates Of Maturity

Metzler V. Graham, 20 EBC 2857 (5th Cir. 1997); In re Unisys Sav. Plan Litigation, 74 F.3d 420 (3d Cir. 1996), cert. denied, 117 S. Ct. 56 (1996).

Conflict Of Interest

• Minimum Duty– Secure Independent Assessment Or

Valuation– Investigate The Expert’s Qualifications– Provide Expert With Complete And Accurate

Information– Engage A Second Firm To Assist In Review

Of Assessment If Necessary

Harris Trust and Savings Bank v. Salomon Smith Barney, 120 S. Ct. 2180 (2000); Owen v. Soundview Financial Group, 2000 US App. LEXIS 4321 (2000); Bussian v. RJR Nabisco, Inc., 2000 US App. LEXIS 19839 (2000); Howard v. Shay, 100 F.3d 1484 (9th Cir. 1996), cert. denied, 117 S. Ct. 1838 (1997); Metzler V. Graham, 20 EBC 2857 (5th Cir. 1997).

Conflict Of Interest

• Remedy Available– Against Non-fiduciary Party In

Interest Who Knowingly Participates In A Fiduciary Breach

Harris Trust and Savings Bank v. Salomon Smith Barney, 120 S. Ct. 2180 (2000); LeBlanc v. Cahill, 1998 U.S. App. LEXIS 18542 (4th Cir. 1998).

Liability For Actions Of Others

• Agents– Specific Authority To Speak– Participants Rely On Agent For Information

• Benefits Counselors– Provide Inaccurate Or Incomplete Information

• Negligence in Hiring/Training Non-Fiduciary Agents

Malone v. Commonwealth Edison Co., 1999 US Dist. LEXIS 16172 (1999); Schmidt v. Sheet Metal Workers’ National Pension Fund, 128 F.3d 541 (1997); Estate of Becker v. Eastman Kodak Co., 1997 WL 400787 (July 19, 1997) (2nd Cir. 1997); Taylor v. The Peoples Natural Gas Co., 49 F.3d 982 (3rd Cir. 1995).

Settlor Or Fiduciary?

• Settlor Actions– Adopt Plans– Terminate Plans

Hamilton v. Allen-Bradley Company, 217 F.3d 1321 (2000); Franklin v. First Union Corporation, 84 F.Supp. 720 (2000); Hunter v. Caliber System, Inc., 220 F.3d 702 (2000); Curtiss-Wright Corp. v. Schoonejongen, 115 S. Ct. 1223 (1995).

Settlor Or Fiduciary?

• Settlor Actions– Modify Plans

• Surplus Distrubition Criteria• Early Retirement Package

– Waiver Requirement OK– Differentiation Based Upon Risk Of Job

Elimination OK for Single Employer Plans

Walling v. Brady, 1997 WL 545795 (July 30, 1997) (3rd Cir. 1997); Lockheed v. Spink, 116 S. Ct. 1783 (1996); Siskind v. The Sperry Ret. Prog., Unisys, 47 F.3d 498 (2nd Cir. 1995).

Settlor Or Fiduciary?

• Fiduciary Actions– Amend Plan To Affect Allocation Of

Asset Pool– Choose Annuity Provider

Jacobson v. Hughes Aircraft Co., 105 F.3d 1288 (9th Cir. 1997), cert. granted, 118 S. Ct. 1558 (1998); Abbott v. Pipefitters Local Union No. 522, 94 F.3d 236 (6th Cir. 1996), cert. denied, 117 S. Ct. 948 (1997); Waller v. Blue Cross of California, 32 F.3d 1337 (9th Cir. 1994).

Administrator Not Fiduciary

• Re Actions Of Investment Manager• Re Participant Directed Voting Of

Shares

Bussian v. RJR Nabisco Inc., 2000 US App. LEXIS 19839 (2000); Pegram v. Hendrich, 120 S. Ct. 2143 (2000); Beddall v. State Street Bank and Trust Co., 137 F.3d 12 (1st Cir. 1998); Herman v. Nationsbank Trust Co., 126 F.3d 1354 (11th Cir. 1997), reh. denied, 135 F.3d 1409 (11th Cir. 1998).

Attorney-Client Privilege

• Does Not Extend To Implementation Of Amendments

Fischel v. The Equitable Life Assurance, 191 F.R.D. 606 (2000); In re Long Island Lighting Co., 129 F.3d 268 (2nd Cir. 1997).

Liability For Breach Of Fiduciary Duty

• To Plan• To Individuals• Civil Penalties

Rodrigues v. Herman, 1997 WL 469680 (Aug. 19, 1997) (9th Cir. 1997); Varity v. Howe, 116 S. Ct. 1065 (1996).

Plan Interpretation

• Rules Of Interpretation– Ordinary Meaning Of Terms– In Harmony With Plan As A Whole– May Look To Extrinsic Evidence If

Ambiguous

Bowerman v. Wal-Mart Stores, Inc., 2000 US App. LEXIS 21067 (2000); Barker v. Ceridian Corp., 1997 WL 523751 (Aug. 26, 1997) (8th Cir. 1997).

Plan Interpretation• Language In SPD Controls

– If Language Of SPD Conflicts With Language Of Plan– If SPD Silent Re Circumstances Resulting In

Prejudice– Not If SPD Silent Re Grant Of Discretionary

Authority– Not Re Reservation Of Right To Amend Or

Terminate

Adams v. Southern Labor Union Pension Trust Fund, 1999 US App. LEXIS 30167 (1999); Sprague v. General Motors Corp., 133 F.3d 388 (6th Cir. 1998), cert. denied, 118 S. Ct. 2312 (1998); Martin v. Blue Cross & Blue Shield of Virginia, Inc., 115 F.3d 1201 (4th Cir. 1997).

Eligibility

• Determination Must Be Based In Plan Language

Vizcaino v. Microsoft Corp., 1997 WL 411663 (July 24, 1997) (9th Cir. 1997) (en banc), cert. denied, 118 S. Ct. 899 (1998), on remand, Vizcaino v. Microsoft Corp., 1998 U.S. Dist. LEXIS 2008 (W.D. Wash. Feb. 13, 1998), amended by, White v. United States Dis. Court (In re Vizcaino), 184 F.3d 1070 (9th Cir. 1999), cert. denied, 120 S. Ct. 844 (2000).

Standard Of Review

• If Discretionary Authority– Arbitrary And Capricious

• If Discretionary Authority But Conflict Of Interest– Heightened Arbitrary And Capricious

McDaniel v. The Chevron Corporation, 203 F.3d 1099 (2000); Pinto v. Reliance Standard Life Insurance Co., 214 F.3d 377 (2000); Vega v. National Life Ins. Serv., Inc., 145 F.3d 673 (5th Cir. 1998); Buckley v. Metropolitan Life, 115 F.3d 936 (11th Cir. 1997); Firestone Tire and Rubber Co., v. Bruch, 489

U.S. 99 (1989).

Standard Of Review

• If No Discretionary Authority– De Novo

• Fact Findings Regardless Of Discretion– Arbitrary And Capricious

Kinstler v. First Reliance Standard Life Insurance Co., 181 F.3d 243 (1999); Kearney v. Standard Insurance Co., 175 F.3d 1084 (en banc) (1999); Pierre v. Connecticut Gen. Life Ins. Co., 932 F.2d 1152 (5th Cir. 1991), cert. denied, 502 U.S. 973 (1991); Firestone Tire and Rubber Co., v. Bruch, 489 U.S. 99 (1989).

Claims Denial

• Claims Denial Letter Must Include– Basis for Adverse Initial Decision -- Specific

Plan Provision– Notice Of Right To Review File– Notice Of Right To Have Decision Reviewed,

Procedure & Time Limit– Necessity For Submitting Additional

Documents If Necessary

Harte v. Bethlehem Steel Corporation, 214 F.3d 446 (2000); Brehmer v. Inland Steel Indus. Pension Plan, 114 F.3d 656 (7th Cir. 1997), aff’d, 114 F.3d 656 (1997); Kinkead v. Southwestern Bell Tel. Co., 49 F.3d 454 (8th Cir. 1995).

The End