Court Allows Retiree Health Challenge to Move On

January 9, 2009 ( - An employer bound by a court-approved lawsuit settlement to provide lifetime retiree health benefits could potentially have breached its fiduciary duties by not adequately capitalizing a retiree health benefit trust fund.

U.S. District JudgeJanet C. Hall of the U.S. District Court for the District of Connecticut issued that ruling in a lawsuit against CRA Holdings Inc. by retiree Robert Frulla who said his former employer had violated the Employee Retirement Income Security Act (ERISA) by not making sure the trust providing the retiree benefits was properly funded.

Hall said her ruling was despite the fact that ERISA carries no minimum funding requirement for health plans and that the holding was based on the 1993 settlement of an earlier legal challenge to the company’s benefits.

“To the extent CRA or its predecessors engaged in transactions, of which fiduciaries were aware, that the fiduciaries knew or should have known would result in an inability to fund future benefits, the fiduciaries had an obligation to investigate steps they could take to prevent the Plan from becoming insolvent,” Hall wrote.

Hall also rebuffed a company argument that it was not required to tell plan participants about a series of corporate transactions that led to the $12-million trust fund set up to fund retiree benefits. In fact, Hall asserted, disclosing these transactions and their probable effect on the funding of retiree benefits would have allowed participants to better protect their legal interest in the benefits.

The court also disposed of CRA’s argument that it did not breach its fiduciary duties by taking $5 million from the $12 million fund to pay a “single premium” to purchase life insurance for the retirees. According to Hall, even if CRA purchased life insurance as part of its responsibility to the plan, that would not mean it had no fiduciary obligation to make sure the trust fund remained properly capitalized.

Hall said the fiscal condition of the plan began to deteriorate in 1999 but was never disclosed to plan participants, nor did the plan’s administrators attempt to seek additional funding for the plan. By 2003, the trust fund had a $2 million deficit, the court said.

The case is Frulla v. CRA Holdings Inc., D. Conn., No. 3:08-CV-119 (JCH), 1/7/09.