Court: Intent Not Necessary for ERISA Breach

June 8, 2005 ( - A federal magistrate has ruled that a defined benefit plan administrative committee breached its fiduciary duties even though it did not intentionally miscalculate one participant's benefits and misrepresent that benefit level to the employee.

As a result, US Magistrate Judge Pamela Meade Sargent of the US District Court for the Western District of Virginia ordered the plan to rescind the participant’s early retirement election and reinstate full benefits as of his normal retirement date.

Citing case law from the US Fourth Circuit Court of Appeal, Sargent asserted that a showing of intent on the part of the party being accused of an Employee Retirement Income Security Act (ERISA) breach was not necessary.

“The lack of any intent to deceive, however, does not insulate the Administrative Committee from liability based on this misrepresentation,” Sargent wrote in her 117-page ruling. “Courts have since found breaches of fiduciary duty based on much less culpable misrepresentations or, even, a failure to communicate material information.”

According to the decision, the case involves Pyrix Resources, a subsidiary of Pittston Co., which announced it was acquiring Paramont Coal Corp. Pittston, which is no longer in business, was a subsidiary of Brink’s Co. 

Paramont had a DB plan that provided all employees, regardless of their salary, a maximum monthly retirement benefit of $350. Pittston likewise offered its employees a defined benefit plan that used a complex method for calculating participants’ benefits.

After Pyrix acquired Paramont, the Paramont and Pittston’s pension plans were merged. The new Pittston plan provided that participants who worked for Paramont would be entitled to have their years of service with Paramont included for purposes of determining their Pittston plan vesting. According to the court, the new Pittston plan specifically provided that previous service with Paramont would not be counted towards participants’ benefit accruals.

Sargent detailed numerous alleged conversations and written communications by Paramont and Pittston officials who five participants alleged misrepresented to them that their years of service with Paramont would be counted towards their Pittston pensions for benefit accrual purposes.

Addington’s Benefits

One participant, Christopher Brooks Addington, alleged he retired in 1995 after he received a letter from Pittston’s administrative committee that stated his monthly benefits would be $2,140. Sargent said Addington received monthly retirement benefits from the Pittston plan of $2,140 for five years when he was told his monthly benefits had been incorrectly calculated and would now be $806. The error, according to Sargent: the plan’s administrative committee accidentally included his years of service with Paramont for benefit accrual purposes.

Addington and four other participants sued the plan and its sponsor alleging an ERISA breach because of the inaccurate benefits calculation information. However, the court ruled that the plan’s fiduciaries did not breach their duties by allegedly misrepresenting to participants that when their employer merged with another firm their years of service with the employer would count towards their benefit accruals under the new firm’s pension plan. It was adequately clear from both oral and written communications that the participants’ years of service with their employer prior to the merger would count towards the new firm’s pension plan for vesting purposes only, Sargent said.

“…the entire blame for the miscalculations of Addington’s early retirement benefits lies with the Pittston Plan and with the Pittston employees who were entrusted with the task,” Sargent wrote. “While I have found that the evidence in this case failed to prove any purposeful scheme to deceive, I, nonetheless, note that the evidence is replete with examples of careless inattention to detail in the administration of this ERISA plan, which resulted in numerous errors including the inaccurate calculation of benefits provided to Addington which is the basis of this claim.”

As a remedy, the court said that Addington should be restored, as much as possible, to the position he would have been in had the misrepresentation of his monthly benefits never been made. Sargent ruled that other federal courts have recognized reinstatement of employment as an appropriate equitable remedy in similar situations, but the court said this was not an available remedy in this case because Addington has been out of the work force for more than 10 years and currently is 72 years of age.

Instead, Sargent ruled that Addington should be allowed to rescind his election for early retirement benefits and be reinstated to the benefits he would be entitled to under the Pittston plan if he had continued to work until his normal retirement date of November 1, 1997. According to the court, this amount would be $1,256 per month.

The opinion in Adams v. Brink’s Co., W.D. Va., No. 2:02cv00044, 6/3/05  is  here.