Inaccurate Statements No Fiduciary Breach

September 22, 2003 ( - Providing an inaccurate projection of pension benefits - even over a number of years - did not constitute a fiduciary breach, according to a recent court ruling.

>The US Court of Appeals for the Second Circuit last week in an unpublished decision rejected plaintiff Mary Hart’s contention that her employer was “grossly negligent” in mailing her incorrect benefit projections without discovering that a clerical error had erroneously credited her with 10 additional years of service.

“The provision of inaccurate information does not amount to a breach of fiduciary duty,” the appeals court said in a per curiam opinion.

Case Background

>Hart worked for the Equitable Life Assurance Society from 1961 to 1963, and then again from 1976 to 1999.   Beginning in 1987, Equitable sent Hart computer-generated benefit statements that computed her benefit based on an incorrect assumption that her break in service ran from 1963 to 1966, rather than from 1963 to 1976.   That error resulted in a significant difference in the projection of benefits Hart would receive.   At the time her job was eliminated in 1999, those annual benefit projection statements indicated that she would receive approximately $1,500/month, according to the court.   However, when Equitable actually prepared the paperwork necessary to process Hart’s first check following her retirement, they discovered the error – and determined that she was only entitled to $500 per month.  

>Hart sued Equitable, alleging it breached its ERISA fiduciary duties by sending her incorrect benefit statements and claiming that they were legally prevented from denying her the monthly benefit indicated on the benefit statements.  

District Court

>The US District Court for the Southern District of New York granted summary judgment in favor of Equitable, finding that no promise had been made “in light of the express disclaimers in the benefits statements that indicated that the benefits amounts described were estimates subject to final audit,” and also that Hart had failed to demonstrate the “extraordinary circumstances” required to prevail on an estoppel claim under ERISA.   The district court also granted summary judgment on plaintiff’s breach of fiduciary duty claim, concluding that plaintiff had failed as a matter of law to show any “affirmative misrepresentations” about her benefits, again relying on the disclaimers, according to the appellate court.

>Hart then appealed – and shifted her argument to allege that Equitable breached its fiduciary duty and ERISA’s statutory disclosure obligations that a plan administrator furnish “a statement indicating, on the basis of the latest available information – (1) the total benefits accrued, and (2) the nonforfeitable pension benefits, if any, which have accrued, or the earliest date on which benefits will become nonforfeitable” to any employee who submits a request in writing.”   Here the appellate court agreed with Equitable that Hart had asserted no claim based on this provision, and that she had, in fact, not amended her original complaint to assert such a claim or raise any related arguments.

Disclaimer Claims

>In its opinion, the appellate court cited Hart’s argument that the district court erred in requiring her to prove “affirmative misrepresentations” to establish a breach of fiduciary duty and in concluding that the disclaimer language in the estimates rendered the admittedly incorrect projected benefits statements “accurate,” because “a disclaimer cannot substitute for compliance with ERISA’s statutory disclosure and fiduciary duties.”   However, the appellate court said that it wasn’t required to resolve the issue since Hart had not shown a breach of that duty.

>The appellate court also agreed with the district court on the issue of the impact of the benefit statements, though for different reasons.   Hart’s claim of gross negligence, according to the court, relied “only on the fact that Equitable mailed incorrect benefits projections in multiple years.”   However, the court cited Department of Labor regulations that “make clear that a fiduciary’s reliance on erroneous data will not automatically amount to a breach of fiduciary duty.”   Noting that Hart had produced no “evidence that any similar error had occurred previously, which might have alerted Equitable to the need to verify its data; nor is there anything in the record that suggests that Equitable was negligent in preparing the benefits statements,” the court said it could not say that Equitable conducted itself imprudently in the production of those statements.  

>The case is Hart v. Equitable Life Assurance Society, 2d Cir.,No. 02-9492, unpublished 9/18/03.