ERIC Supports SPD Case Dismissal

ERIC recently filed a brief with a federal appellate court in a case about a plan changing over from defined benefit to cash balance status.

On September 6, the Employee Retirement Income Security Act (ERISA) Industry Committee (ERIC), along with the U.S. Chamber of Commerce, filed an amicus brief with the 2nd U.S. Circuit Court of Appeals. The brief pertains to the Osberg v. Foot Locker Inc. case and urged the appellate court to uphold the district court’s dismissal of the claims of plaintiffs, who were seeking reformation of the plan and surcharge (effectively money damages) against a plan sponsor regarding the communication of their retirement plan amendment from a defined benefit (DB) plan to a cash balance plan.

The case alleged that there were misleading summary plan description (SPD) explanations of the conversion from a traditional formula to a cash balance formula. The plan conversion itself provided for possible “wear-away” of the old formula benefit, and guaranteed the greater of the old formula benefit earned to the date of conversion and the new cash balance account.

Plan participants claimed that the plan sponsor was required to inform employees about the possible period of “wear-away” after the traditional DB plan was converted to a cash balance plan. The participants also claimed that the plan sponsor’s alleged failure to do so was a breach of the fiduciary duty rules for SPDs and that the plan should be reformed or the sponsor surcharged for a monetary reward.

ERIC’s brief argues that the plan sponsor’s SPD and other plan communications properly summarized the plan amendment, and did not give rise to any right to equitable remedies (of the type found available by the U.S. Supreme Court in Amara v. Cigna.) ERIC’s brief also stated that the applicable statute of limitations had expired prior to the filing of the lawsuit.

The brief indicates that a court should not rewrite a plan document, or penalize the administrator who follows the plan document, merely because a SPD does not disclose wear-away in pension accruals. The brief explains that SPDs are intended to describe the key terms of a plan, not the effect of those terms on participant’s varying circumstances. The brief also states that the type of relief requested by the participants—equitable remedies such as reformation and surcharge—are applied only in rare cases that would not include a mere ambiguity in an SPD. Finally, the brief argues that the time had expired to file a lawsuit, since it was not brought until years after the plan amendment.

According to ERIC, the plaintiffs and the Department of Labor, in its own amicus brief, have argued for strict liability in plan communications and the broad equitable remedies previously mentioned. They argue that relief should be provided not based on any showing of actual harm to participants, but merely on the basis that an SPD may have not been perfect.

“This is a very important case. Plan communications should not be converted into absolute guarantees and leave plan sponsors at risk of substantial liabilities for good faith mistakes or communication ambiguities decades after they are made,” said ERIC President Scott Macey, Washington, DC.

The full text of ERIC’s amicus brief can be found here.