In this unpublished ERISA decision from the Fourth Circuit, the Court does a masterful job navigating the complexities of the notice requirements of 29 U.S.C. § 1054(h), as amended in 2001, and affirms summary judgment for the participant, who did not receive notice of a change in his pension calculation that cost him thousands of dollars a year.
Brady v. Dow Chemical Company Retirement Board, No. 07-2040 (4th Cir. Feb. 18, 2009): ERISA requires that plans provide their participants with adequate notice of substantial plan amendments under 29 U.S.C. § 1054(h), and in particular notice of “a significant reduction in the rate of future benefit accrual.” The ordinary remedy for a failure to give such notice is that the plan continues to pay benefits to the participant at the same, higher rate as under the pre-amended plan. But since 2001, plans have had a “safe harbor” from liability for their failure to issue notice. Congress directed courts under 29 U.S.C. § 1054(h)(6)(B) that relief may issue only where the participant shows that there was
“an egregious failure to meet the requirements of [§ 204(h)] if such failure is within the control of the plan sponsor and is
“(i) an intentional failure (including any failure to promptly provide the required notice or information after the plan administrator discovers an unintentional failure to meet the requirements of this subsection),
“(ii) a failure to provide most of the individuals with most of the information they are entitled to receive under this subsection, or
“(iii) a failure which is determined to be egregious under regulations prescribed by the Secretary of the Treasury.”
Moreover, Congress authorized the Treasury Department to issue addition al regulations, which (effective 2003) stated that the requirements of “section 204(h) . . . are treated as satisfied if the plan administrator makes a reasonable, good faith effort to comply with those requirements.” 68 Fed. Reg. 17,277, Q&A(18) (Apr. 9, 2003) (to be codified at 26 C.F.R. pts 1, 54, and 602).
In Brady’s case, the failure to notify him of an amendment cut his pension benefit by over ten percent. The plan provided two payment schedules for voluntary (Table 1) and involuntary (Table 2) retirement, and Brady qualified under the latter more generous schedule. The plan was later amended to eliminate the Table 2 benefits. The notice that issued was, to say the least, opaque:
“It is important to note that when you retire on or after February 7, 2003, you will continue to have the right to elect to receive the monthly pension benefit, and associated eligibility dates and payment options you earned under the [Prior UCC Plan] through February 6, 2003. You will not receive a monthly pension benefit less than what you had earned before February 7, 2003.
“In addition, to further ease the transition to UCEPP, you will continue to earn benefit accruals under the [Prior UCC Plan] formulas through December 31, 2005. [Except for two modifications inapplicable to the current dispute that relate to how length of service is calculated and which indicia of earnings is used], [t]his benefit will serve as a minimum monthly pension benefit when you retire.”
Affirming summary judgment for the plaintiff, the panel holds that (1) the 10.7% reduction in benefits qualified as a “significant reduction,” and (2) the notice above was not adequate because it was not “written in a manner calculated to be understood by the average plan participant.” The only remaining issue, then, was whether the violation was merely a good-faith omission or “egregious.”
As did the district court, the panel examines the case under each subsection. The panel holds (in disagreement with the district court) that (ii) did not apply. It construes “§ 1054(h)(6)(b)(ii) [to] require a determination that at least a majority of ‘applicable individuals,’ as that term is defined in § 1054(h)(8)(A), did not receive a large degree of information they were entitled to receive.” The panel holds that the district court failed to make relevant findings on this point: “[It] did not determine whether plan participants and other applicable individuals failed to receive a large degree of information that they were entitled to receive under § 204(h). A district court must in some way compare the magnitude of the deficiency in information to the magnitude of the information required under § 204(h) to find that ‘most of the individuals’ did not receive ‘most of the information they [were] entitled to receive.'”
But the panel affirms summary judgment on subsection (i). In particular, the Court finds under 29 U.S.C. § 1054(h)(6)(B)(i) that although the defendant knew that participants were confused about the future of the Table 2 benefits after the first notice, it never botherd to send a second notice: “[T]he district court properly concluded that the Board discovered its failure to provide sufficient information to allow average plan participants to understand that the plan amendment would eliminate Table 2 with respect to the December 31, 2005, grandfather benefit.”
Finally, the panel agrees that despite the Treasury “safe harbor” regulation, the defendant’s failure to give notice lacked good faith by failing its duty to send corrective notice: “It is not enough to have made a good faith effort at the outset of a plan amendment. The text of § 204(h) further supports this understanding . . .This provision affirms that there is a continuing obligation to correct a deficient § 204(h) notice. An act constituting an egregious failure to meet the requirements of § 204(h) necessarily constitutes a violation of § 204(h). Congress may have been concerned about the ability of pension plans to satisfy the requirements of § 204(h) before Treasury clarified those requirements, but it apparently concluded that it was affording pension plans sufficient protection by placing any pension plan acting in good faith into its safe harbor.”
A very thorough analysis, marred only by the panel’s decision not to publish its handiwork.