Employer Breached ERISA Fiduciary Duties by Providing Misleading Plan Documents
Monday, May 19, 2008
Contributed by: Joel Griffith
In O'Meara v. CIT Group, Inc., a recent case from the United States District Court of New Jersey, the court ruled that an employer breached its fiduciary duties by providing misleading Flexible Spending Account ("FSA") plan documents to employees. O'Meara v. CIT Group, Inc., 2008 WL 907474 (D.N.J. 2008). In this case, when an employee was hired, she received a new hire enrollment guide and a health FSA Summary Plan Description ("SPD"), both of which stated that the health FSA would reimburse only those medical expenses that the employee "incurred" during the plan year. However, neither the guide nor the SPD specified when expenses were "incurred."
Plaintiff, an employee, enrolled in the health FSA and elected to contribute $3,000 from her 2005 wages to her FSA account. After enrolling, plaintiff began receiving orthodontic treatment. She paid her orthodontic bills in December of 2005 with a payment of $4,878.25 and submitted a claim for reimbursement from her FSA account. The Plan Administrator sent her a check in the amount of $623.63 and later explained that the remaining balance of $2,377.37 would not be paid because not all of the orthodontic services were performed during 2005.
The employee sued the employer, alleging (among other things) that the employer breached its fiduciary duties under the Employee Retirement Income Security Act ("ERISA") because its health FSA documents misled her into believing that she would "incur" her orthodontic expenses when she paid them.
The court explained that adequate disclosure to employees is one of the major purposes of ERISA and that an employer who misleads plan participants or misrepresents the terms or administration of the plan breaches an ERISA fiduciary duty. The court found that when the employee elected to deposit money into the FSA, it was her understanding that if she paid for services in full in a given year, she would "incur" an eligible expense for that year, even if some of the treatment extended into the following year. The court concluded that because the enrollment guide and SPD did not give plaintiff any indication that if she paid for the orthodontic services in 2005 that she would not be reimbursed out of her 2005 FSA account that the documents were misleading. The court held that because the documents were misleading the employer breached its ERISA fiduciary duty to plaintiff.
This case should serve as a reminder to employers that you must review your plan documents routinely and ensure that all provisions can be easily understood by all employees.
This column is published for informational purposes only. It should not be construed as legal advice and is not intended to create an attorney client relationship. The views expressed are those of the author and do not necessarily reflect the views of the author's law firm or its individual partners.
