A Look at Case Law for Important Plan Documentation Reminders

Two important cases provide good reminders to plan fiduciaries about (1) the importance of documentation of fiduciary processes, and (2) accurate communication of plan design changes to participants and beneficiaries. 

A Lesson in Documenting Processes

In George v. Kraft Foods Global, Inc. plaintiffs brought a claim against Plan fiduciaries, alleging that certain fiduciaries acted imprudently by mismanaging certain funds under a 401(k) Plan and paying excessive fees to the Plan's service providers, including its recordkeeper Hewitt Associates (Hewitt).  Participants under the Plan were allowed to contribute a specified amount of their salary into various multi-stock investment funds as well as two company stock funds (CSFs).  The plaintiffs alleged that the Plan fiduciaries made imprudent decisions regarding the operation of the CSFs by operating on a "unitized" basis rather than a share basis, meaning participants owned units of the fund rather than shares of the company stock.  The plaintiffs stated that by using the unitized approach, "investment drag" and "transactional drag" occurred causing a loss of  millions of dollars because the Plan fiduciaries failed to take action to minimize or eliminate investment and transactional drag.

Although the Plan fiduciaries had discussions about investment and transactional drag and corresponded with Hewitt regarding the costs and benefits of various solutions to these issues, the appeals court concluded that the evidence did not support a finding that the Plan fiduciaries ever made a final decision as to how to handle investment and transactional drag.  In addition, the appeals court made it clear that the district court needed to determine whether a prudent fiduciary would have had to make a determination on the investment and transactional drag arguments.  The court's comments serve as a good reminder to all fiduciaries to carefully document all decision making to ensure a record exists for examination in the future.

The plaintiffs also claimed that the Plan fiduciaries paid excessive fees to Hewitt.  The plaintiffs argued that the fiduciaries acted imprudently because they failed to periodically solicit competitive bids from other service providers for recordkeeping services since the fiduciaries first hired Hewitt in 1995.  As a result, the plaintiffs alleged that Hewitt's fees were excessive.  The defendants stated they were not required to solicit bids, and that they sought the advice of several independent consultants to ensure Hewitt's fees were reasonable and not excessive.  The appeals court ultimately determined that it could not reasonably conclude that the defendants satisfied their fiduciary duties to ensure Hewitt's fees were reasonable because the consultants' advice did not appear to be conclusive and an absolute endorsement of Hewitt's fees.    

A Lesson in Consistent Communications

In Cigna Corp. v. Amara, the plaintiffs alleged that proper notice had not been provided by Cigna to participants under the Cigna Pension Plan when the Plan benefits changed from a defined benefit plan design to a cash balance plan design.  The communications from Cigna did disclose how the Plan would be changed, but the plaintiffs contended that Cigna did not fully inform all participants and beneficiaries of the potential reduction in benefits they may experience. 

Cigna stated in its communications that the new plan would

·         "significantly enhance" its "retirement program,"

·         produce "an overall improvement in…retirement benefits,"

·         provide "the same benefit security" with "steadier benefit growth." 

The district court found the statements quoted above problematic, specifically that the statements were "significantly incomplete and misled its employees."

However, the Court (much to the relief of plan sponsors) found no legal support for reformation of a Plan based on a summary plan description.  This is welcome news to plan sponsors who view the Plan as the ultimate document that provides employees' benefits and the SPD as a summary of those benefits.  However, instead of ending its comments here and remanding the case for further review consistent with just this holding, the Court continued by providing that there may be appropriate equitable relief under ERISA §502(a)(3) and that such relief may include monetary compensation.  This is not so welcome news, as this potentially leads to ambiguity in what is the proper remedy in such cases. 

An important reminder is provided in this case regarding communications of plan changes.  It is critical to carefully consider the impact of design and legal changes to all participants before and while drafting communications to participants and beneficiaries explaining plan modifications.  Regardless of the remedy outcome in the Cigna v. Amara case, the Court found a violation occurred because the language in the written materials provided to the participants and beneficiaries did not accurately reflect the impact of the design changes to all affected individuals.

What Reminders You Should Take-Away from these Cases

·         Carefully document decision making processes of plan fiduciaries (e.g., investment committee, benefits committee, etc.).  Do not discuss an issue and not reach a final conclusion

·         Review the minutes from prior fiduciary meetings in later meetings to ensure all open items were resolved; document all resolutions, so it is evident a decision was made and not left unresolved

·         Consider talking with legal counsel when making difficult or high impact plan decisions to adequately protect the plan, plan sponsor, fiduciaries, etc. in case a decision is later questioned

·         Be careful that SPDs and other communications are consistent and not overly broad or promising in ways that may cause confusion and additional liability

·         Have legal counsel review all key communications (do not rely upon vendors) to ensure consistency in the plan documents and SPDs and to minimize unintended liabilities



If you have questions or need additional information regarding these cases and how they impact your plan documentation and decision making processes, please contact Melissa Reese, Tiffany Sharpley, or your Ice Miller Employee Benefits attorney.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader must consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.