Breach of Fiduciary Duty

[Janie]

Is this a breach of fiduciary duty and should we comply with his request?

The plan indicates that any employee who works over a year (even if the employee has not met the standard 5 year vesting) and terminates employment after age 55 is 100% vested.   This employee met this requirement.  However, the employee was somehow “lost” in the defined benefit plan recordkeeping system and never recognized as being vested.   The employee was given a Summary Plan Description when he was originally hired.  However, NO notices were ever mailed to him at termination or periodically.  He was not mailed a Deferred Vested Pension Notice at termination; He was not reported on the annual Schedule SSA in the year of termination; He was not updated with a SPD when the plan was modified; He was never mailed a SPD during the 10 years between his termination and age 65; He was never provided an annual notice.  It is not a matter of a “lost” participant as his mailing address and phone number remained the same throughout all these years.  Three months before his 65^th birthday, he contacted the plan administrator, asking for his paperwork.   He was not called back because it was thought that he did not qualify since he did not have 5 years vesting.  He later called back again and insisted that he was vested because of ERISA.   It was referred to our legal department who said that he was in fact vested due to his age at termination.   He has now asked that the benefits be paid from age 62 (which is allowed in the plan without any penalty).   A brief letter was mailed to him saying that he would have had to apply before age 62 to get the benefits and that he could only get benefits starting at age 65 but no explanation of how to appeal the decision was in the letter.   Since this was apparently a breach of fiduciary duty (although no one has openly admitted this to him), should he be paid the benefits from age 62?  And what if we have others who also fall into this category due to our failure to recognize the over 55 rule?  

[jpod]

Absent other pertinent facts (unlikely because you were so thorough), this is not a case you would want to defend in court. Fortunately it is probably a very small amount if he had less than five years of service.  I would hire counsel to try to wrap this up with a release so he can't sue you for ERISA failure to disclose penalties.  I see no risk of plan disqualification if, as part of the settlement, you agree to pay him retro to age 62.  Also, before turning the page I would try to make sure he is an aberration and there is no systemic problem with plan administration.

[CuseFan]

Paying retro to age 62 would be an RASD and unless the plan allows would be an operational defect. I agree there are some compliance issues here and would explore settlement outside the plan, but would also suggest counsel.

[david rigby]

Since he contacted the PA just before 65, that might imply he knew all along that he was vested, and that he should apply for the benefit.  If you take that approach, it may be possible to ignore any retroactive commencement date.  However, as stated above, get ERISA counsel to opine.

[jpod]

Interesting point David Rigby.  Janie, did the SPD he was given upon hire say that he could claim a benefit at 62?  Even if it did, however, it still is a bit awkward because he did not get the statutorily-required disclosures post-termination. 

[Janie]

Yes, the SPD did indicate that he could retire early at 62.  However, it was worded as if there would be a early retirement penalty.  However, the plan allows 100% vesting with no reduction at age 62 under his circumstances.   The SPD wording has been changed since then to make it more clear; but he did not receive the updated SPD and thought he was would be subject to a reduction in benefits if he retired early.