Request for Public Comments

[Federal Register: September 14, 2000 (Volume 65, Number 179)]
[Notices]
[Page 55857-55861]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr14se00-129]
[[Page 55857]]
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Part VI
Department of Labor
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Pension and Welfare Benefits Administration
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Disclosure Obligations Under ERISA; Request for Information; Notice
[[Page 55858]]
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DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration


Disclosure Obligations Under ERISA; Request for Information
AGENCY: Pension and Welfare Benefits Administration, Labor.
ACTION: Notice of request for information.
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SUMMARY: This document requests information from the public concerning
disclosure obligations of fiduciaries of employee benefit plans
governed by ERISA. A principal component of ERISA's regulatory scheme
is its specific disclosure rules, which generally impose two types of
obligations on plan administrators: (1) Obligations to disclose certain
information to plan participants and beneficiaries automatically; and
(2) obligations to disclose certain information upon a participant's or
beneficiary's request. The Department of Labor solicits comments in
this document regarding the effect on employee benefit plans and
employers of recent rulings of the United States Supreme Court and
federal circuit courts regarding the extent of an ERISA fiduciary's
duty to disclose information to participants and beneficiaries in
addition to the specific disclosure requirements imposed under ERISA.
The Department of Labor has in the past expressed its views on this
matter by filing amicus briefs in related court cases. It intends to
use the information submitted in response to this document as a basis
for determining whether it would be appropriate for the Department to
take more general action on these issues, such as by proposing
regulations or legislative amendments.

DATES: Written comments are requested to be submitted to the Department
of Labor on or before January 12, 2001.

ADDRESSES: Comments (preferably, at least six copies) should be
addressed to the Office of Regulations and Interpretations, Pension and
Welfare Benefits Administration, Room N-5669, U.S. Department of Labor,
Washington, D.C. 20210. Attention: Disclosure RFI. All comments
received will be available for public inspection at the Public
Disclosure Room, Pension and Welfare Benefits Administration, U.S.
Department of Labor, Room N-5638, 200 Constitution Avenue, NW,
Washington, D.C. 20210.

FOR FURTHER INFORMATION CONTACT: Ellen Goodwin or Susan Lahne, Office
of Regulations and Interpretations, Pension and Welfare Benefits
Administration, Room N-5669, U.S. Department of Labor, Washington, D.C.
20210, telephone (202) 219-7461, or Patricia Arzuaga, Plan Benefits
Security Division, Office of the Solicitor, U.S. Department of Labor,
Washington, D.C. 20210, telephone (202) 219-4600, x153. These are not
toll free numbers.

SUPPLEMENTARY INFORMATION:

A. Background

    The Department of Labor (Department) seeks information from the
public concerning the disclosure obligations of fiduciaries of employee
benefit plans governed by the Employee Retirement Income Security Act
of 1974 (ERISA). ERISA contains specific disclosure rules, contained in
Part 1 of Title I, that require disclosure of certain information to
participants and beneficiaries. Part 1 generally imposes two categories
of obligations on plan administrators: (1) Obligations to disclose
certain information automatically; and (2) obligations to disclose
certain information upon a participant's or beneficiary's request. The
provisions contained in Part 1 of Title I describe the content and
timing of both types of mandated disclosures. ERISA further imposes
certain general duties, contained in Part 4 of Title I, on plan
``fiduciaries'' with respect to how they conduct their affairs.\1\
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    \1\ A ``fiduciary'' is ``someone acting in the capacity of a
manager, administrator, or financial advisor to a `plan'.'' Pegram
v. Herdrich, _ U.S. _, 120 S. Ct. 2143, 2151 (2000). See ERISA
Sec. 3(21); 29 U.S.C. 1003(21).
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    Certain recent rulings by the United States Supreme Court and
several federal circuit courts have expressed views under a variety of
circumstances on the extent to which the fiduciary duties in Part 4 of
ERISA create disclosure obligations beyond those set forth in Part 1.
The law in this area is still evolving. The Department is concerned
that these rulings, coupled with recent changes in the laws governing
the substantive requirements for employee benefit plans,\2\ may have
created uncertainty as to how plan fiduciaries may best conduct their
affairs so as to satisfy their fiduciary and disclosure obligations
under ERISA. Moreover, changes in work patterns of participants and
beneficiaries, new forms of pension and health plan design, and changes
to the provisions of ERISA and the private pension and welfare benefit
system have resulted in questions about the application of fiduciary
and disclosure provisions to differing circumstances. Although the
Department has provided guidance to interpret and enforce the
disclosure provisions in Part 1 of Title I and the fiduciary provisions
in Part 4 of Title I through regulatory and other actions, the
Department believes that these recent developments may suggest a
possible need for further general guidance regarding the interplay of
these provisions.
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    \2\ For example, most states have instituted comprehensive
benefit mandates for health plans. In addition, federal law now
includes benefit mandates regarding portability of health coverage
and nondiscrimination in benefits (Health Insurance Portability and
Accountability Act of 1996), coverage for maternity hospital stays
(Newborns' and Mothers' Health Protection Act of 1996), mental
health (Mental Health Parity Act of 1996), and reconstructive
surgery following mastectomy (Women's Health and Cancer Rights Act
of 1998).
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    The Department now seeks public assistance in determining whether
it would be in the interest of plans, and their participants and
beneficiaries, for the Department to undertake action to clarify the
extent of fiduciary duties under ERISA regarding disclosure and the
interaction of this fiduciary duty with the specific disclosure
requirements under Part 1 of Title I. The Department intends to
consider a variety of possible actions, including (but not limited to)
promulgation of formal regulatory guidance, more targeted intervention
in litigation, enforcement actions, or legislative reform proposals.

1. Statutory Duties

    With respect to automatic disclosures of information, ERISA
specifically identifies particular documents and information that must
automatically be provided to participants and beneficiaries independent
of any request, for example, the Summary Plan Description (SPD) \3\ and
summary annual reports.\4\ There are additional required disclosures
that arise under particular circumstances (e.g., material modifications
in plan terms) \5\ or as a result of the type of plan involved (group
health plan versus other welfare benefit plans, self-funded plans
versus insured).\6\
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    \3\ ERISA section 104(b)(1); 29 U.S.C. 1024(b)(1) (SPD to be
furnished to participant and beneficiary receiving benefits under
the plan within 90 days of becoming participant or beneficiary).
    \4\ ERISA section 104(b)(3); 29 U.S.C. 1024(b)(3) (summary
annual report to be furnished to participants and beneficiaries
within 210 days after close of fiscal year of the plan).
    \5\ ERISA section 104(b)(1); 29 U.S.C. 1024(b)(1) (summary of
material modification (SMM) to be furnished within 210 days after
end of plan year during which modification was adopted).
    \6\ ERISA section 101(d); 29 U.S.C. 1021(d) (single employer
plan required to notify participants and beneficiaries of failure to
meet minimum funding standards); ERISA section 104(b)(1); 29 U.S.C.
1024(b)(1) (group health plan required to furnish summary to
participants and beneficiaries of material reduction is covered
benefits not later than 60 days after adoption of the change); ERISA
section 103(e); 29 U.S.C. 1023(e) (plans offering coverage through
an insurance policy required to disclose in annual report certain
information regarding premium payments).

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[[Page 55859]]

    ERISA separately prescribes categories of documents that must be
provided upon a participant's request, such as an annual individual
statement of accrued benefits,\7\ or the latest version of the plan's
SPD, annual report, or any terminal report.\8\ The statute also
requires plans to provide to participants and beneficiaries, on written
request, copies of any ``trust agreement, contract, or other
instruments under which the plan is established or operated.'' \9\
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    \7\ ERISA Sec. 105; 29 U.S.C. 1025.
    \8\ ERISA Sec. 104(b)(4); 9 U.S.C. 1024(b)(4).
    \9\ Id. Compare Teen Help Inc. v. Operating Engineers Health and
Welfare Trust Fund, No. C 98-2084, slip op. at 8 (N.D. Cal. Aug. 24,
1999) (utilization review criteria used to decide a claim for
benefits are ``other instruments'' and must be disclosed upon
request under section 104(b)(4)), with Doe v. Travelers Ins. Co.,
167 F.3d 53, 60 (1st Cir. 1999) (``mental health guidelines'' used
to decide a claim were not ``other instruments'' and therefore not
required to be disclosed upon request under Sec. 104(b)(4)). In
Advisory Opinion 96-14A (July 31, 1996), the Department expressed
its view that ``any document or instrument that specifies
procedures, formulas, methodologies, or schedules to be applied in
determining or calculating a participant's or beneficiary's benefit
entitlement * * * would constitute an instrument under which a plan
is established or operated'' for purposes of section 104(b)(2) and
(b)(4), regardless of whether such information is contained in a
document designated as the ``plan document.''
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2. Fiduciary Obligations

    The general fiduciary duties set forth in Part 4 of Title I are
simply summarized. Fiduciaries owe a duty of loyalty to plan
participants and beneficiaries to act solely in their interest and for
the exclusive purpose of providing benefits to them and defraying the
reasonable expenses of administering the plan. ERISA section 404(a);
see Pegram, 120 S. Ct. at 2151. A fiduciary must carry out his or her
duties with the care, skill, prudence, and diligence under the
prevailing circumstances that a prudent person with like knowledge and
like capacity would use to conduct an enterprise of a like character
with like aims; must diversify plan assets; and must operate the plan
in accordance with its governing documents. Id. However, section 404
does not specifically articulate a duty regarding disclosure of
information to participants and beneficiaries.
    Recent court decisions have found that plan fiduciaries have a duty
to disclose information not expressly required to be disclosed under
Part 1 of Title I. These cases have involved the fiduciary duty to act
solely in the interest of plan participants and beneficiaries and the
issue of the extent to which this fiduciary duty encompasses a
collateral duty to provide participants and beneficiaries with
information they need to exercise their rights effectively under the
plan, to protect their rights under ERISA, or otherwise to make
informed decisions about their future. These decisions have differed
with respect to their approach, and the law appears to be evolving. As
a result of the differing judicial rulings, the rules applicable to
fiduciaries regarding these obligations at present appear to vary
according to the federal judicial circuit that has jurisdiction over
the case.
    In Varity Corp. v. Howe,\10\ the Supreme Court opined that when a
fiduciary speaks to participants and beneficiaries, the fiduciary
standards of section 404 impose a duty upon the plan fiduciary to speak
truthfully. Thus, a fiduciary may not lie to, or affirmatively mislead,
a participant or beneficiary about plan terms or important aspects of a
plan's status, such as whether the plan will soon be terminated. In
reaching its decision, the Court expressly reserved the broader
question of ``whether ERISA fiduciaries have any fiduciary duty to
disclose truthful information on their own initiative, or in response
to employee inquiries.\11\ The Court's recent decision in Pegram, 120
S. Ct. at 2154 n.8, which addressed fiduciary issues arising out of
medical decisionmaking under a group health plan, stated in dicta that
``it could be argued that * * * [a fiduciary] is obligated to disclose
characteristics of the plan and of those who provide services to the
plan, if that information affects beneficiaries' material interests.''
Although not part of the holding of the Court in Pegram, this dicta
could be read to support the conclusion that, in certain circumstances,
a fiduciary has an affirmative duty of disclosure. In Pegram, the
plaintiff had challenged an HMO's system for awarding financial
incentives to its physicians, which she claimed impermissibly
encouraged HMO physicians to deny needed care in return for increased
monetary rewards.\12\
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    \10\ 516 U.S. 489 (1996).
    \11\ Id. at 506.
    \12\ Cf. Shea v. Esensten, 107 F.3d 625 (8th Cir.) (holding that
a plan administrator has a fiduciary duty to disclose all material
facts affecting a plan participant's health care interests,
including financial incentives that might discourage a treating
physician from providing essential referrals for covered
conditions), cert. denied, 522 U.S. 914 (1997). But see Ehlmann v.
Kaiser Foundation Health Plan of Texas, 198 F.3d 552 (5th Cir.)
(holding that ERISA does not impose a duty on fiduciaries to
disclose physician compensation arrangements in absence of inquiry
or special circumstances), cert. dismissed, ____ U.S. ____, 2000 WL
1146498 (Aug. 15, 2000).
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    Following the decision in Varity, lower federal courts have been
confronted with a variety of issues regarding the scope of a
fiduciary's duty to disclose, when such disclosure would not be
expressly required under Part 1. The resulting decisions have created a
patchwork of rules across jurisdictions. Certain circuit courts have
held that providing misleading information to plan participants who
inquire about, for example, their benefits under a plan or the extent
of benefits generally under a plan may constitute a breach of fiduciary
duty.\13\ Other circuit courts have gone farther to impose an
affirmative duty on fiduciaries to provide complete and correct
information, regardless of whether a participant or beneficiary has
specifically inquired.\14\ Another circuit court has imposed upon plan
fiduciaries a continuing ``duty to correct'' statements in an SPD that
have become materially misleading to plan participants due to events
subsequent to the distribution of the SPD.\15\ Courts have recognized
that circumstances that may necessitate plan changes, such as employer
business reorganizations or bad financial times, may create a conflict
of interest between plan fiduciaries and participants over what
information should be disclosed. In defining the boundaries of required
disclosures, courts have attempted to balance the conflicting needs of
employers and participants in the area of increased benefits under so-
called ``window plans'' by articulating tests requiring disclosure only
when a company has become engaged in ``serious consideration'' of a
plan change.\16\ At the other end of the

[[Page 55860]]

spectrum, other circuit courts have been reluctant to create new duties
to disclose information to participants, regardless of the asserted
value of the information to participants, beyond what is specifically
required by Part 1 of Title I, ERISA's reporting and disclosure
provisions.\17\
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    \13\ Krohn v. Huron Memorial Hosp., 173 F.3d 542, 551 (6th Cir.
1999) (faced with a participant injury, fiduciary had a duty under
ERISA to convey to the participant complete and correct material
information as to his eligibility for benefits and options under the
plan); Eddy v. Colonial Life Ins. Co., 919 F.2d 747, 750 (D.C. Cir.
1990 (same).
    \14\ Farr v. U.S. West, 151 F.3d 908, 913 (9th Cir. 1998), cert.
denied ____ U.S. __, 120 S. Ct. 935 (2000) (finding that ``fiduciary
has an obligation to convey complete and accurate information
material to the beneficiary's circumstance, even when a beneficiary
has not specifically asked for the information'' where SPD provided
incomplete information on tax treatment of lump sum distributions);
Jordan v. Federal Express Corp., 116 F.3d 1005, 1016 (3rd Cir. 1997)
(finding that participant's failure to inquire did not preclude suit
for breach of fiduciary duty for failure to disclose material facts
regarding irrevocability of retirement elections).
    \15\ McAuley v. IBM Corp., Inc., 165 F.3d 1038, 1046 (6th Cir.),
cert. dismissed, ____ U.S. ____, 120 S. Ct. 38 (1999).
    \16\ Bins v. Exxon, U.S.A., 189 F.3d 929, 935-37 (1999)
(discussing different standards for ``serious consideration''
adopted by various federal circuits), rev'd en banc, No. 98-55662,
2000 WL 1126387 (9th Cir. Aug. 10, 2000) (holding that in response
to participant inquiries a fiduciary must disclose information about
any plan changes then under serious consideration. Absent such
inquiry, fiduciaries have no obligation to volunteer information
about plan changes prior to final adoption.); Vartanian v. Monsanto
Co., 131 F.3d 264, 272 (1st Cir. 1997) (employer had no fiduciary
duty to disclose retirement incentive program because it was not yet
under serious consideration at the time of participant's inquiry);
Fischer v. Philadelphia Elec. Co., 96 F.3d 1533, 1539 (3rd Cir.
1996) (the ``serious consideration'' test ``recognizes and moderates
the tension between an employee's right to information and the
employer's need to operate on a day-to-day basis;'' serious
consideration found when ``(1) a specific proposal (2) is being
discussed for purposes of implementation (3) by senior management
with the authority to implement the change''), cert. denied, 520
U.S. 1116 (1997).
    \17\ Ehlmann, 198 F.3d at 555; CWA/ITU Negotiated Pension Plan
v. Weinstein, 107 F.3d 139 (2nd Cir. 1997) (no right to disclosure
of pension plan's actuarial valuation reports); Faircloth v. Lundy
Packing Co., 91 F.3d 648 (4th Cir. 1996) (no right to disclosure of
IRS determination letter on plan's qualification status, bonding
policy insuring ESOP against fiduciary misconduct, appraisal
reports, or valuation reports of employer's stock and documents
concerning employer's financial status and operations; funding and
investment policy for plan treated differently as ``instrument under
which the plan is established or operated''), cert. denied, 519 U.S.
1077 (1997); Barnes v. Lacey, 927 F.2d 539 (11th Cir.) (no right to
disclosure, in connection with company's offering early retirement
window plan, of possibility that company might later offer second,
enhanced window plan), cert. denied 502 U.S. 938 (1991).
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3. Issues To Be Addressed

    Because the federal courts' decisions have differed in their
treatment of many issues concerning the fiduciary duty to make
disclosures to participants and beneficiaries, the Department wishes to
determine whether it would be advisable to issue general guidance in
this area to encourage uniform protections to participants and
beneficiaries across the nation.\18\ Therefore, the Department solicits
comments to assist it in developing a basis on which to determine what
actions, if any, would be in the public interest. The following
specific questions are intended to highlight the areas of the
Department's concern, but are not intended to limit the scope of
comments. Please refer to the specific relevant question by number in
responding to the enumerated questions. The Department solicits comment
from interested parties on the following questions:
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    \18\ The Department has expressed its views in specific
circumstances, including submitting amicus briefs in Varity v. Howe
and Shea v. Esensten.
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    1. To what extent do the current reporting and disclosure
requirements of Part 1 of Title I fail to meet the needs of
participants and beneficiaries with respect to understanding their
benefits, their rights under ERISA, and the consequences of choices
offered to them under their plans?
    2. To what extent do the current administrative practices of plans
fail to meet any of the following standards, each of which has been
articulated by one or more courts as part of a fiduciary's duty under
Part 4 of Title I:
    a. Plan administrators should provide complete and accurate
information when responding to requests for automatic disclosures
(courts have treated material omissions as affirmative
misrepresentations);
    b. Plan administrators should correct misleading statements
contained in documents provided upon request when it is clear that the
statements which were once accurate and informative have now become
misleading;
    c. Plan administrators should provide complete and accurate
information relevant to the participant or beneficiary's specific
circumstances when the participant or beneficiary requests information
about his or her benefits;
    d. Plan administrators should provide complete and accurate
information relevant to the participant or beneficiary's specific
circumstances when the participant or beneficiary inquires about future
plan changes;
    e. Plan administrators should disclose characteristics of the plan
and of those who provide services to the plan, if that information
affects beneficiaries' material interests.
    3. What practical factors should the Department consider in
developing a general policy or interpretive approach to provide
guidance concerning what disclosures are required of plan fiduciaries,
beyond those required by Part 1 of Title I, and the relationship
between a fiduciary's duties under Part 4 and Part 1?
    4. To what extent would changes have to be made to plan
administration in order for plans to meet any or each of the standards
set out in question 2, above?
    5. Should any guidance issued by the Department on fiduciary
disclosure obligations take into consideration State regulatory
requirements, or other federal regulatory requirements (e.g.,
securities laws, consumer protection laws, etc.)? If so, which
requirements?
Data
    6. What costs and benefits for plan sponsors and participants would
be associated with modifying plan administrative practices regarding
disclosure to meet each of the possible standards described in question
2, above?
    7. To what extent do the costs and benefits associated with
modifying administrative practices to meet the possible standards
described in question 2, above, differ among plans that are fully
insured, administered by third parties, or self-administered?
    8. Are the costs and benefits for plan sponsors and participants of
modifying administrative practices to meet the possible standards
described in question 2, above, different for small plans (those with
fewer than 100 participants)?
    9. To what degree is the timing of disclosures about plan
modifications related to the timing of routine communications with
employees, such as furnishing employee newsletters, open-season
informational packets, or individual account statements?
    10. What costs and benefits might arise for plan sponsors and
participants from additional guidance on fiduciary disclosure
obligations, and how might these costs and benefits differ for small
plans?
Hypothetical Fact Patterns
    11. A plan sponsor modifies the benefits provided under a plan to
comply with recently enacted federal benefit requirements. How and when
do plan fiduciaries currently inform participants of these changes?
    12. A plan subject to new federal benefit requirements has not yet
been brought into compliance with the new federal requirements. The
plan materials (such as the SPD) also have not yet been updated to
reflect the changes, nor has the plan issued any notices advising plan
participants of the changes in the law. The plan administrator is aware
that the law affecting the plan has changed and that the plan is not
yet in compliance. A participant, unaware of the new law, calls to ask
whether the plan provides benefits that are mandated under the new
requirements. What do plan administrators do in these circumstances?
    13. A participant has requested information about the value of the
retirement benefit that he will have earned upon attaining a certain
age. The plan administrator is aware that the retirement benefit would
have a much greater value as an annuity versus a lump sum amount. The
plan administrator is aware that the

[[Page 55861]]

retirement benefit would have a much greater value at a date earlier
than the normal retirement age due to early retirement benefits. What
information do plan administrators currently provide to participants
under these circumstances?
    14. Employer A sells its business to Employer B and cancels its
group health insurance, which had been provided through Issuer C.
Employer B's group health plan will not absorb all of the former
employees of Employer A. Employer A's plan offers conversion rights to
the individual market, but neither Employer A's plan materials nor
Issuer C's materials disclose this conversion right. Employee D,
formerly a participant in Employer A's now-defunct plan, needs
continuous, expensive treatment for a serious health condition which
was covered by Employer A's plan and calls Issuer C to ask about
conversion rights. What information do plan fiduciaries acting in
capacities similar to Issuer C currently provide to an employee like
Employee D?
    15. An employer is considering selling part of its business or
instituting retirement incentives to reduce its labor costs. How, when,
and to whom do fiduciaries currently disclose an employer's
deliberations regarding retirement incentives?
    16. An employer is considering instituting a change to its defined
benefit pension plan that would significantly change the value of the
benefit, or reduce the value of the benefit upon attaining a certain
age. How, when and to whom should the fiduciary of the employer's
pension plan disclose the employer's deliberations regarding the
changes to the benefit plan? What information do plan fiduciaries
currently disclose to plan participants and beneficiaries in these
circumstances, and when is this disclosure made?
    17. An employer offers an early retirement program for Pension Plan
F, and Plan F issues booklets providing an overview of the retirement
program to all eligible employees. The booklet purports to highlight
the ``basic federal tax rules'' relevant to the choice between taking
the pension benefits in a lump sum or in a series of monthly
installments. The booklet does not say that only qualified portions of
the lump sum distributions may be rolled over to another qualified plan
or IRA without being taxed and that the rest of the distribution will
be taxed. The plan materials describe the basic rule that qualified
portions of a lump sum distribution may be rolled over tax-free, but do
not explain what ``qualified'' means and who will be affected by this
distinction. Would fiduciaries currently consider the information
provided in these plan materials sufficient, and, if not, what
additional information do fiduciaries currently provide, when, and to
whom?
    18. An employer has failed to meet its obligation to pay for
premiums on behalf of its employees for an insured health plan which
could lead to a suspension of benefit payments or a termination of the
policy. What disclosures are currently made by the insurer to plan
participants under such circumstances and when are they made?
    All submitted comments will be available for public inspection and
will be made a part of the public record of future guidance issued by
the Department, in the event that the Department determines to issue
future guidance on these matters.

Authority: 29 U.S.C. 1135, 1143; Secretary of Labor's Order No.
1-87, 52 FR 13139.

Signed at Washington, DC, this 8th day of September, 2000.
Leslie Kramerich,
Acting Assistant Secretary for Pension and Welfare Benefits.
[FR Doc. 00-23603 Filed 9-13-00; 8:45 am]
BILLING CODE 4510-29-P

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