Impact of the ERISA First Impression Fair Relief Ruling

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On June 28, the United States Court of Appeals for the Eleventh Circuit ruled that a beneficiary of the Employee Retirement Income Security Act plan can sue a plan administrator or its agents under the law to recover life insurance benefits lost due to breach of fiduciary duty.

The case, Gimeno c. NCHMD Inc., solved a first impression ERISA question.

In Gimeno, an employee chose supplemental life insurance during open enrollment. In order to be eligible for additional coverage, proof of insurability had to be submitted to the human resources department. However, the human resources department did not send the employee the correct forms or advise them that they are missing or needed. Nevertheless, the employer withheld the premiums for the supplementary coverage for three years and informed the employee that she had life insurance coverage for a total value of $500,000.

After the employee’s death, his spouse filed a claim with the plan’s insurance company. The insurance company denied the claim because the proper forms had never been completed. Accordingly, the spouse brought an action against the employer and the plan administrator under section 502(a)(1)(B) of ERISA.

The employer and plan administrator decided to dismiss the lawsuit, and the spouse agreed that a claim for benefits under section 502(a)(1)(B) was not appropriate and proposed to amend the complaint to file a claim for breach of fiduciary duty. obligation under ERISA Section 502(a)(3) for “appropriate equitable relief,” which the district court rejected and became the subject of the appeal to the Eleventh Circuit.

“Fair Supplement” under ERISA Section 502(a)(3)

The spouse argued that Section 502(a)(3) provided equitable relief for fiduciary breaches, in accordance with the U.S. Supreme Court’s decision in CIGNA Corp. against Amara (2011), who concluded that monetary relief is available in the form of an “equitable surcharge” against offending trustees.

The spouse persuaded the Eleventh Circuit that the employer’s failure to provide the forms to his spouse was a breach of fiduciary duty and that he should be able to file a claim under Section 502 (a ) (3) to recover the $350,000 of supplemental life insurance coverage.

The Eleventh Circuit agreed with the precedent set in the Second, Fourth, Seventh, Eighth, and Ninth Circuits. Prior to Amarahowever, these cases were regularly dismissed by the courts.

Action points for employers after Gimeno

After Gimeno, employers and Eleventh Circuit plan administrators can take immediate action to avoid facing similar lawsuits due to alleged inactions or misstatements by plan trustees. Although the apparent evil in Gimeno occurred during the enrollment process, its reasoning could be applied to statements, actions or inactions that occur at any time during the plan administration process.

Employers should immediately take the following actions.

Employer Audit

To try to avoid a Gimenoof a lawsuit type, employers should immediately conduct an audit to confirm that all employees who have elected and are paying premiums for supplemental life insurance coverage have completed the necessary paperwork, including proof of insurability documentation .

This assessment should include all current employees and may require confirmation that these documents have been received and accepted by the insurer. To the extent an employee has not submitted the required documentation, the employer must send a monthly communication to the employee stating that this information is required before coverage becomes effective. If an employee does not provide the required information, employers should consult with their legal counsel and the insurer to decide whether the supplemental coverage should be canceled and premiums refunded to the employee.

With respect to other potential life insurance issues, employers and plan administrators should consider whether they are providing complete and accurate information to employees. This could include information about an employee’s ability to convert a policy, whether the premium amounts withheld match the coverage selected by the employee, whether the enrollment website allows employees to purchase coverage amounts who exceed their eligibility under the plan and/or if coverage continues during specified leave periods.

Other benefit checks

Since future claimants may attempt to apply the reasoning of Gimeno to other benefit programs, employers and plan administrators should also consider other benefit plan audits to ensure that they have been and continue to be administered properly. This should include reviewing plan documents, amendments, plan summary descriptions, agreements with service providers (including trustees, custodians and custodians), registration records, withholding and dues remittance, loan and distribution processes.

Compliance training

Employers and plan administrators should also consider whether they have adequate annual training for human resources and other staff who help administer the plan. The training should include segments related to how best to handle communications with employees and avoid spreading inaccurate or misleading information.

The law will continue to develop in the Eleventh Circuit under this new theory and plaintiffs like Gimeno may be granted an equitable surtax as a remedy when relief is not otherwise available under Section 502 (a ) (1) (B).

This article does not necessarily reflect the views of the Bureau of National Affairs, Inc., publisher of Bloomberg Law and Bloomberg Tax, or its owners.

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Author Information

Todd Wozniak is a partner at Holland & Knight LLP and head of the firm’s ERISA litigation team. He defends corporations, trustees, and public institutions across the United States in ERISA, employee stock ownership, and other commercial litigation.

Cory Thomas is senior counsel at Holland & Knight LLP. He focuses his practice on employment advocacy, employee benefits, executive compensation, and ERISA litigation.

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