Employees and retirees frequently receive information relating to benefits – eligibility to participate, coverage for certain medical treatment, enrollment status, anticipated benefits at retirement, and so forth.  Sometimes that information appears in formal documents published by named plan fiduciaries.  Other times it comes in response to one-off inquiries made to persons working in the HR department or employed by a third-party administrator.  A recent Fifth Circuit decision highlights the risk posed by erroneous information:  fiduciaries’ possible liability for extra-contractual relief that will make a misinformed plaintiff “whole.”

Remedial provisions of ERISA authorize courts to provide certain types of relief to individuals.  Among them, Section 502(a)(1)(B) allows a court to award “benefits due” under the terms of a plan and Section 502(a)(3) authorizes “appropriate equitable relief.”

Under Section 502(a)(1)(B), courts may award monetary relief only for benefits that would be properly paid by the plan.  Consider, for example, a plaintiff who worked 15 years that counted under a defined benefit plan.  If the plan mistakenly paid a benefit based on 12 years of service, a judgment may award the past shortfall and order corrected benefits going forward.  But if the benefit was based on 15 years in accord with the plan, the “benefits due” provision would not authorize any relief – even if someone had told the plaintiff before retirement to expect higher payments mistakenly based on 20 years of service.

Plaintiffs in such cases – and in a host of other contexts involving statements about eligibility, status, coverage, forecasted benefits, etc. – have long contended that courts should make someone pay damages for harm allegedly flowing from reliance on erroneous information.  Lacking a contractual basis in a plan for such “make whole” relief, plaintiffs have often sought extra-contractual damages as “equitable relief” under Section 502(a)(3).

For many years, courts almost uniformly rejected such claims.  Citing precedents that construed Section 502(a)(3) to authorize only remedies available from courts of equity, such decisions deemed extra-contractual damages to be monetary relief available only from courts of law.  That view, however, was called into question in 2011 by Supreme Court dicta in CIGNA Corp. v. Amara.  After reversing the lower court’s reliance on Section 502(a)(1)(B) to provide relief not warranted by the plan document, the majority opinion in Amara discussed estoppel, surcharge, and other doctrines that equity courts applied that might require payments to remedy breaches of trust.

Some lower courts have turned that dicta into holdings.  The Fifth Circuit did so in February 2013 in Gearlds v. Entergy Services, Inc., 709 F.3d 448 (5th Cir. 2013).

The claims in Gearlds arose from alleged statements about retiree medical benefits.  The Fifth Circuit assumed the following allegations to be true:  Mr. Gearlds collected disability benefits from 1994 to 2002, when he was deemed no longer disabled, but he did not return to work after 2002.  When Mr. Gearlds considered early retirement in 2005, the plan administrator informed him that he would be eligible for retiree medical benefits (as he would have been, if still disabled).  Relying on that, Mr. Gearlds retired in 2005 and waived medical benefits available under his wife’s retirement plan.  In 2010, the plan administrator realized that Mr. Gearlds had not been disabled at retirement and notified him that medical coverage would cease.  He sued the plan administrator, invoking Section 502(a)(3) to seek a remedy for the loss of medical benefits.

The district court dismissed the complaint in light of pre-Amara decisions that precluded extra-contractual monetary relief in such cases.  The Fifth Circuit reversed, holding that Mr. Gearlds pleaded a colorable claim against the plan administrator.  In doing so, the panel deemed dicta from six Supreme Court justices sufficient to overturn circuit precedent barring the relief Mr. Gearlds seeks from the plan administrator.

Notably, the Fifth Circuit did not reach the plan administrator’s argument that Mr. Gearlds’s claim will fail on the merits because the erroneous statement about retiree medical coverage in 2005 was a “ministerial” act rather than a “fiduciary” one.  The Fifth Circuit ruled that the allegations of affirmative misrepresentations “at least plausibly alleged a breach of fiduciary duty” and remanded the case for further proceedings.   By contrast, the Second Circuit held last year that a benefits administration manager was not acting as a plan fiduciary when he researched and communicated the anticipated benefits a plaintiff would receive under a workforce reduction program.  Tocker v. Kraft Foods No. Am., Inc. Ret. Plan, No. 11-2445, 2012 WL 3711343, 54 Empl. Ben. Cas. 1507 (2d Cir. Aug. 29, 2012) (summary order).

Gearlds illustrates a change in judicial attitudes toward extra-contractual “make whole” relief that stems from Amara.  While plaintiffs must overcome other obstacles to obtain relief – e.g., proving fiduciary status, culpable state of mind, materiality, reasonable reliance, and so forth – the litigation risk posed by erroneous statements to employees and retirees about benefits is now arguably more significant than before.  Furthermore, it should be noted that remedies such as surcharge impose liability for extra-contractual monetary relief on a fiduciary (such as a plan administrator when acting in a fiduciary capacity) rather than on the plan.