August 10, 2021 — Blog
Monitor Internet Portals Estimating Employee Retirement Benefits
Recently, a court decision highlighted the importance of plan sponsors making certain that their member portals are being monitored on a regular basis for accuracy in conveying members’ estimates of their defined benefit plan payments. This matter was highlighted in the case of Bafford v. Northrop Grumman Corp., 9th Cir., 2021, a case brought by plan participants.
In an error uncovered by a new plan recordkeeper, the plan participants were told that the estimations of their benefits were significantly overstated, and where applicable, benefit payments had to be returned. This led to their bringing an action to retain the original benefit amounts received. The Ninth Circuit Court of Appeals responded to the claim in which the participants cited the plan sponsor’s violation of its fiduciary duties under ERISA and negligence as follows:
- The Ninth Circuit stated the employer, plan administrative committee, and the recordkeeper were not performing a role as a fiduciary when performing the benefit calculation. In making the finding, the Ninth Circuit was following a similar decision in both the First and Fourth Circuits, noting that liability for a fiduciary breach can be found only when a fiduciary function is being performed. It deemed the calculation of pension benefits using a pre-determined formula to be a “ministerial” function and not a fiduciary function and thus there was not a breach of fiduciary duties.
- The second fiduciary duty breach claim asserts that the employer and plan administrative committee provided incomplete and inaccurate benefit statements. The Ninth Circuit stated that a request made on a portal did satisfy ERISA’s requirement of being a request made “in writing.” It noted that consequently, the participants could amend their complaint to acknowledge that they made a written request for benefits; which was not responded to properly.
- Finally, regarding the ERISA preemption relating to the participant’s negligence claim against the third-party recordkeeper, the Court ruled that ERISA did not preempt state law claims of professional negligence against the recordkeeper. It held that state law negligence claims do not directly impact ERISA plans and was not preempted. This led to the case being remanded to the district court to address the malpractice claim against the recordkeeper.
In this case, the court agreed with the employer and administrative committee in dismissing the claim of a fiduciary breach. This, however, does not preclude the option of the participants resurrecting their claim for the employer and administrative committee’s failure to provide an accurate benefit statement in response to a written request, as well as the negligence claim against the recordkeeper. The takeaway here is that plan sponsors and their administrators must be diligent in their monitoring of their employee benefit portals to ensure that they are providing accurate information consistent with the plan terms.