By Bill Wright
An employer breached its fiduciary duty under ERISA by failing to inform benefit plan participants of the covered health insurance benefits in terms a reasonable person would understand. The employer was the plan administrator, and had adopted a simplified plan document that merely incorporated its third-party claim administrator’s summary plan description. The SPD had not been updated, so there were years’ worth of material modifications attached. One of the modifications included a provision removing a lifetime cap on health insurance benefits. The TPA meant for that to apply only to the employees’ plan, not to the retirees’ plan, but the only indication of this limitation was an indiscernible change in font and an asterisk on a heading about health care reform. The heading with the asterisk was even on a different page. The provision removing the lifetime cap on health insurance benefits made no reference to health care reform.
The estate of a participant sued, both for benefits and for breach of fiduciary duty. The administrator (i.e. the employer), plan and TPA won in the district court, but on appeal, the Ninth Circuit ruled that a reasonable participant might read the SPD and modifications to lift the lifetime cap even for retirees. The case was sent back to the lower court for findings on damages.
Bear in mind that the SPDs you issue to employees (and other participants of your plans) must be sufficiently clear for the average person enrolled in the plan to understand. It isn’t enough that your third party administrator knows what it meant to say. King v. BCBS et al., No. 15-55880 (9th Cir. September 8, 2017.)