Employer Cannot be Fiduciary Before its Existence

August 23, 2006 (PLANSPONSOR.com) - The US District Court for the Northern District of Illinois has ruled that a spin-off company cannot be held liable for misrepresentation of benefits to employees before the transaction to create the company is complete.

In granting Hospira Inc.’s motion to dismiss charges against it, the court noted that, “No court has held that a corporation can be an ERISA fiduciary prior to its existence.” Plaintiffs charged Hospira and Abbott Laboratories, from which Hospira was spun-off, with breaching their Employee Retirement Income Security Act fiduciary duties by misrepresenting future retirement benefits for employees accepting positions with Hospira.

According to the opinion, representatives from both companies told employees that benefits would remain the same throughout 2004 and would be reconsidered afterward. The plaintiffs charged that the companies already knew that the defined benefit pension plan would be frozen as of year end 2004 and that Hospira would not provide retiree medical benefits.

The court said Hospira was not yet a fiduciary under ERISA at the time these statements were made. Plaintiffs were participants in Abbott Laboratories’ plans and there were no Hospira plans in existence.

The district court denied Abbott’s motion to dismiss charges against it. Abbott argued that plaintiffs’ claims did not include all elements of a claim for breach of ERISA fiduciary duties. The court replied that plaintiffs are not required to plead facts for every element of a claim, but are simply required to state a grievance such that the defendant is aware of the accusations against it.

The case is Nauman v. Abbott Laboratories and Hospira, Inc.