By Jane Meacham
Employers should exercise oversight of third-party administrators, to ensure they distribute accurate plan notifications and information about beneficiary distributions. That’s because in the case of certain errors, the TPA may end up not being defined as a fiduciary, as Judge James Graham in the U.S. District Court for the Southern District of Ohio, Eastern Division, ruled in Stark v. Mars Inc., Case No. 2:10-cv-642 (July 17, 2012). And that could leave the employer holding the bag.
Former Mars employee Virginia Stark sued the company for breach of fiduciary duty in 2010 after a benefits calculation error was discovered that lowered her monthly retirement benefits substantially. She alleged Mars misrepresented the amount of her pension benefits and denied her benefits in violation of ERISA.
But Judge Graham ruled that Hewitt Associates, the TPA contracted to maintain computer database records, a webpage and a call center, was not acting as a fiduciary for Mars’ retirement plans because they performed administrative and ministerial functions without the power to make plan policy.
“There is no evidence that Hewitt or any of the employees at the call center exercised any discretionary authority or discretionary control [in plan or plan asset management], or had any discretionary authority … [in plan administration]. Hewitt was the record keeper for the plan and did not make benefits decisions.”
In his decision, Graham continued that, without evidence that Mars failed to exercise ordinary care in selecting and retaining a record keeper or in monitoring the accuracy of an automated system, the fiduciary’s reliance on erroneous data did not amount to a breach of fiduciary duty. Said the judge, “There is no evidence that Hewitt had provided inaccurate information prior to this instance, which was caused by a computer programming error in December of 2008.”
U.S. Department of Labor regulations agree, stating that those who prepare employee communications material, calculate benefit and advise participants of their rights and options under the plan are not fiduciaries.
To establish a claim for breach of fiduciary duty based on misrepresentation of benefits available under an employee benefit plan, the court decision said, a plaintiff must show that:
- the defendant was acting in a fiduciary capacity when it made the alleged representations;
- these representations constituted material misrepresentations; and
- the plaintiff relied on those misrepresentations to his or her detriment.
The judge decided that the plaintiff had not demonstrated these points.