By Pension and Benefits Editorial Staff
A welfare fund beneficiary was entitled to seek the equitable remedy of surcharge against fund trustees for alleged misrepresentations that caused her to lose augmented benefits under a related pension plan, according to a federal trial court in New York. In denying the fund’s motion for summary judgment, the court stressed that the availability of surcharge was not conditioned on an injury traceable to specific assets of the welfare fund, the trust agreement did not prohibit the assessment of surcharge on the trustees, and surcharge may be imposed as a standalone remedy without an injunction.
Erroneous advice results in lost pension benefits. A member of the International Union of Operating Engineers Local 15 participated in a Welfare Fund and a Penson Plan maintained by the union. The two plans have no formal affiliation with each other. However, employees of the Welfare Fund on occasion provided advice related to benefits under the Pension Plan.
Following a diagnosis of terminal cancer in January 2011, the employee signed paperwork to apply for early retirement, at age 61, with the understanding, based on information from a Fund employee, that his wife would receive an extra $300 monthly pension benefit if he died after having retired. When the employee was hospitalized in July 2011, his wife attempted to file the early retirement paperwork. However, she was erroneously informed by a claims specialist with the Welfare Fund that the couple would lose their health benefits if the employee retired before attaining age 62. In fact, by retiring at age 61, the employee would not have accrued additional health benefits, but would not have lost benefits. However, in order not to jeopardize the health benefits of her dying husband, the employee’s spouse elected not to submit the early retirement paperwork and instead applied for a short-term disability benefit from the Fund.
The employee died in September 2011. His surviving spouse attempted to submit the employee’s signed early retirement papers after his death and contested the pension plan’s determination that she was entitled only to a $787 per month preretirement annuity. After unsuccessfully pursing administrative appeals, the spouse brought parallel ERISA actions against the Board of Trustees of the Pension Plan and the Welfare Fund, as well as several individually named trustees, seeking the augmented pension benefit of $1,067 per month.
A federal trial court in New York issued summary judgment in favor of the Welfare Fund and the Pension Plan. On appeal, the Second Circuit affirmed the award of summary judgment in favor of the Pension Plan, as the terms of the plan barred the surviving spouse from receiving the augmented benefit. By contrast, the court concluded that there were genuine issues of material fact as to: (1) whether the Welfare Fund trustees were acting as fiduciaries when a Fund employee provided the erroneous advice to the spouse and (2) if so, whether the trustees breached their fiduciary duties through a combination of a misleading SPD and the erroneous advice. However, the court remanded the case for a determination of whether the spouse was entitled to equitable relief under ERISA Sec. 502(a)(3) for the alleged breach of trust, suggesting that the spouse might be able to surcharge the Welfare Fund to compensate her for the difference between her pension payout and the augmented benefit.
Equitable relief available for breach of trust. In moving for summary judgment on remand, the Welfare Fund maintained that no equitable remedy, including surcharge, was available to the spouse. Rejecting the Fund’s argument, the court explained that the United States Supreme Court, in Cigna Corp. v. Amara (563 U.S., 421 (2011) expressly ruled that parties may obtain monetary relief under ERISA Sec. 502(a)(3) in the form of equitable surcharge. According to Amara, surcharge is appropriate to prevent a trustee from being unjustly enriched by a breach of duty or to recompense a beneficiary for loss caused by a trustee’s breach (i.e., “make-whole” relief).
Harm and causation elements satisfied. Having confirmed the availability of equitable surcharge under ERISA Sec. 502(a)(3), the trial court found that the spouse relied to her detriment on misrepresentations made by the Welfare Fund employee about the potential loss of her husband’s health benefits. In addition, the spouse plausibly claimed that but-for the misrepresentations, she would have submitted the early retirement paperwork and not the augmented pension benefits. Thus, the spouse established harm and stated a claim for surcharge under either the detrimental reliance or but-for theory of causation.
Surcharge is not conditioned on traceability. The Welfare Fund further contended that the relief sought by the spouse was not equitable because it was not traceable to specific assets or property in the Welfare Fund Trust, which has no funds attributable to the pension benefits in question. Noting that surcharge is a more expansive remedy than restitution, the court stressed that surcharge, following Amara, does not require a party to prove unjust enrichment or the loss of particular plan funds. As explained by the Supreme Court in Amara, surcharge extends to a breach of trust committed by a fiduciary encompassing any violation of fiduciary duty.
Trust agreement does not prohibit surcharge. The Welfare Fund further maintained that the spouse could not use surcharge theory to seek compensation for the lost pension benefits because the Welfare Fund Trust Agreement prohibited Fund assets from being used for any purpose other than the payment of health benefits for its members. The court found, however, that the Fund Agreement did not prohibit the imposition of surcharge on the Fund’s trustees. The Agreement allowed the Fund to pay administrative expenses and authorized the use of trust fund to indemnify its trustees, including those against whom surcharge would be applied.
Surcharge does not require injunction. As a final matter, the court dismissed as “weak sauce” the proposition that injunctive relief is necessary to seek surcharge.
SOURCE: DeRogatis v. Board of Trustees of the Welfare Fund of the International Union of Operating Engineers Local 15 (DC NY).
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