Was Failure to Inform of New Separation Program a Breach?

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“You didn't tell me about the retirement incentive program before I retired,” Bill, a college professor told Michelle, the school's chief academic officer.

“The program wasn't finalized, and it was not available until more than a year after you retired,” Michelle said. “We didn't do anything wrong by not letting you know about it.”

FACTS: A professor worked for a university for more than 30 years. When he began considering retirement, he consulted with the department chair.

The department chair sent the professor an individual separation agreement which outlined the terms of his retirement, and the university's chief academic officer approved the plan. The professor finished out one year, took administrative leave with pay the next year and was then given emeritus status.

The professor claimed that while making plans for his retirement, the academic officer and the department chair were participating in a committee of administrators charged with creating solutions to improve academic and financial issues.

Eighteen months after the professor's separation, the academic officer told staff that the school would provide a voluntary separation incentive plan for full-time staff employed for at least 15 years.

The professor wrote to the academic officer and claimed that he was eligible for this particular plan. The academic officer notified the professor that he was not eligible for the plan because his full-time, active status ended before the academic officer had introduced the plan to the other faculty members.

Ignoring the academic officer's determination, the professor applied for the voluntary separation incentive program. His original claim and appeal were denied.

The professor sued the employer for breach of fiduciary duties under the Employee Retirement Income Security Act and claimed he was owed benefits under the new separation incentive program. He claimed that the university was obligated to disclose information regarding the upcoming separation incentive program and that the program was in development when he was negotiating the terms of his retirement agreement, causing him to choose a less favorable retirement plan.

The university disagreed that the plan was in development during the professor's retirement negotiation.

ISSUE:  Did the university breach its fiduciary duty?

The university did not breach its fiduciary duty regarding the retirement plan that was implemented 18 months after the professor's retirement, a federal district court ruled

The court ruled in favor of the university, finding that the school was not in a fiduciary relationship with the professor when his retirement plan was created and even if they were, the professor did not show sufficient evidence to prove that the university misrepresented the existence of the program.

The professor failed to prove that the university owed fiduciary duties to him under ERISA, that it misstated any information or triggered disclosure duty and that any misstatement was instrumental in his decision to retire, the court said.

The court determined that no statement made by the university was misleading or false and the professor did not specifically inquire about any upcoming retirement plan options when considering his retirement but only expressed a general interest in retiring.

The court found that the incentive program was too new when the professor negotiated his contract for a fiduciary breach to have taken place.

The university's plan was in preliminary stages and the professor's evidence did not prove that the university was moving towards a specific proposal while he was negotiating his own separation agreement, the court said.

There was no evidence proving that the plan was even in place while the professor was considering retirement, nor that the university misrepresented whether or not it planned to offer a separation incentive plan, it said Soland v. George Washington University, 2014 BL 206283, D.D.C., 1:10-cv-02034-CRC, 7/25/14).

POINTERS: Two standards have been developed by the courts to determine whether a fiduciary breach has occurred: the serious consideration standard and the materiality standard.

The serious consideration standard has been used by courts to determine when an employer-fiduciary has a duty to inform plan participants when it is considering a proposal to amend the plan.

Serious consideration occurs when a specific proposal is being discussed for purposes of implementation by senior management with the authority to implement change. Therefore, a potential change in plan benefits becomes likely when the employer-fiduciary seriously considers a proposal to change those benefits, thus triggering fiduciary duties.

Under the materiality standard, courts consider whether a fiduciary has provided misleading facts to a participant upon which the participant would rely in making decisions. Courts look at whether an ERISA fiduciary makes guarantees to a plan participant misrepresenting future benefits.

For more information, see Compensation and Benefits Library's “Fiduciary Standards” chapter.

To contact the reporter on this story: K. W. Mitchell in Washington at kwmitchell@bna.com

To contact the editor on this story: Michael Baer at mbaer@bna.com

This analysis illustrates how courts resolve pay-related disputes. The names and dialogue are fictitious.