Fiduciary Breach Claim Stemming From Elimination of Retiree Health Benefits May Proceed

Baker v. Save Mart Supermarkets, 2023 WL 2838109 (N.D. Cal. 2023)

This lawsuit arose after an employer made changes to its non-union retiree health benefits. Initially, the employer replaced its payment of health coverage premiums for non-union retirees and their spouses with contributions to HRAs. Employees were later told that spousal HRA contributions would continue only for employees who retired before a specified date. To retain the spousal benefit, some employees retired on or before the stated date, earlier than they had originally planned. Eventually, the employer announced that all non-union retiree medical benefits would be eliminated, with any accumulated HRA funds reverting to the employer. A group of retirees sued, asserting that the employer breached its fiduciary duty by misrepresenting that non-union benefits would be as good as or better than benefits for union retirees and that employees who retired by the stated date would retain their benefits for life. The employer countered that the plan’s terms allowed it to modify or terminate the plan at any time for any reason and asked the court to dismiss the case.

In refusing to dismiss the case, the court explained that, to prevail in their fiduciary breach claim, the retirees would need to show that they relied on material misstatements the employer made while acting as a fiduciary. In general, the court noted, fiduciary considerations come into play when employers communicate with employees about benefit plans. According to the retirees, the employer’s representations that non-union benefits were as good as union benefits were false because the union plan did not allow the employer to unilaterally eliminate benefits or take back plan funds. In addition, the employer’s communications about the continuation of spousal benefits—including its responses to questions from affected individuals—were not complete or accurate because they did not indicate that the HRA benefit could be terminated at any time. The court concluded that the retirees’ arguments, along with their claims that they had made specific decisions in reliance on the employer’s statements, were enough to allow the case to proceed and for the retirees to pursue the equitable remedies of reformation or surcharge.

EBIA Comment: Fiduciaries have a duty to provide truthful information to participants and beneficiaries, which includes a prohibition on misleading statements and harmful silence. Although it remains to be seen whether the retirees will succeed in proving their claims, this lawsuit serves as a reminder that the right to amend and terminate welfare benefits, while broad, may be limited if express statements have been made about those benefits. For more information, see EBIA’s ERISA Compliance manual at Sections XXVIII.F (“ERISA Fiduciary Duties and Participant Disclosure”) and XXVIII.I.5 (“Fiduciaries May Sometimes Be Liable for Harm Caused to Individual Participants”). See also EBIA’s Self-Insured Health Plans manual at Section VIII.C (“Overview of ERISA Fiduciary Responsibilities”) and EBIA’s Consumer-Driven Health Care manual at Section XXV.D (“HRAs and ERISA”).

Contributing Editors: EBIA Staff.

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