Fourth Circuit Clarifies that an Employer/Plan Administrator/Named Fiduciary is Indeed an ERISA Fiduciary
In the case of Dawson-Murdock v. National Consulting Group, Inc., an employer argued that it was not an ERISA fiduciary of its own group life insurance plan, even though the employer was designated as the “plan administrator” and “named fiduciary” in the plan documents. The United States District Court for the Eastern District of Virginia accepted the employer’s argument and ordered that the case be dismissed. Dawson-Murdock v. National Counseling Group, Inc., Case No. 3:18-cv-58, 2018 WL 3744020 (E.D. Va. August 7, 2018). The Fourth Circuit Court of Appeals reversed. Dawson-Murdock v. National Counseling Group, Inc., ___ F.3d ___, Case No. 18-1989, 2019 WL 338535 (4th Cir. July 24, 2019), clarified the meaning of the term fiduciary and held that a person named as the plan administrator and named fiduciary qualified as an ERISA fiduciary and could be sued for breach of statutory duties owed plan participants and beneficiaries.
The facts of the case are relatively straightforward. The plaintiff, Rema Dawson-Murdock, sought benefits under a group life insurance policy issued by Unum Life Insurance Company of America to her late husband’s employer, National Consulting Group, Inc. (“NCG”). After Ms. Dawson-Murdock made a claim for death benefits, a vice-president of NCG advised her that Unum had denied the claim but that NCG would pay the amount of the insurance benefit out of its own funds and would work with Unum to try to recoup the amount paid. Ultimately, after NCG’s discussions with Unum were unsuccessful, NCG reneged on its promise to pay Ms. Dawson-Murdock’s claim for death benefits.
The plaintiff’s husband, Wayne Murdock, worked full-time for NCG and elected employer-provided group life insurance coverage of $150,000. Mr. Murdock switched to part-time work on March 21, 2016. He did not return to full-time work and died on August 30, 2016. After Mr. Murdock’s death, Ms. Murdock submitted a death benefits claim to Unum. On October 24, 2016, NCG’s vice-president of human resources notified Ms. Dawson-Murdock that Unum had denied her claim. He further advised Ms. Dawson-Murdock that NCG would pay the claim amount while it Unum worked through the denial with Unum. The vice-president advised Ms. Dawson-Murdock that she would not have to deal further with Unum. A few days later, Ms. Dawson-Murdock received a denial letter from Unum. The letter stated that Mr. Murdock was not eligible for group life coverage when he died because he had switched to part-time work and had not exercised his option to convert or port his coverage. Ms. Dawson-Murdock did not submit an appeal of the denial decision to Unum because of the vice-president’s representations. Over the next several months, the vice-president repeatedly advised Ms. Dawson-Murdock that NCG was working on the payment, but in February 2017 he told her that NCG would not make the payment.
Ms. Dawson-Murdock sued NCG and the NCG life insurance plan in the United States District Court for the Eastern District of Virginia. She alleged claims under ERISA and state law. The ERISA claims were based on 29 U.S.C. § 1132(a)(3), which provides that a participant or beneficiary of an ERISA plan may sue to obtain “appropriate equitable relief” for violations of certain ERISA provisions or the terms of a plan. Ms. Dawson-Murdock claimed that NCG failed to notify her husband that his eligibility for the group life insurance plan changed after he switched to part-time work, even though he continued to pay premiums to NCG.
The decision in the case turned on whether NCG was a “fiduciary” of the NCG plan at the time the vice-president communicated with Ms. Dawson-Murdock. The district court ruled in that NCG was not a plan fiduciary because it did not meet the ERISA definition of “fiduciary” found in 29 U.S.C. § 1002(21)(A). That statute states that a person is a fiduciary with respect to a plan if (1) he exercises any discretionary authority or discretionary control regarding the management plan or the disposition of its assets, (2) renders investment advice for a fee with respect to plan assets, or (3) has any discretionary authority or discretionary responsibility in the administration of the plan. The district court ruled that collecting Mr. Murdock’s premiums and failing to notify him of his right to continue coverage under the policy’s portability or conversion provisions was not fiduciary activity. In support of this holding, the court relied on a regulation adopted by the Department of Labor, 29 C.F.R. § 2509.75-8 (D-2), which states that “a person who performs merely ministerial functions” for an employee benefit plan does not qualify as an ERISA fiduciary. The district court dismissed the ERISA because NCG was found not to be a fiduciary. The state law claims for negligence and breach of contract were found to be preempted by ERISA and were also dismissed.
The Fourth Circuit reversed. In Dawson-Murdock v. National Counseling Group, Inc., ___ F.3d ___, Case No. 18-1989, 2019 WL 338535 (4th Cir. July 24, 2019), the court held that NCG, as plan administrator and named fiduciary under the life insurance plan, could be sued as a fiduciary even if it did not meet the functional fiduciary test of 29 U.S.C. § 1002(21)(A). The court also held that Ms. Dawson-Murdock had adequately alleged that NCG was acting as a functional fiduciary in failing to inform her late husband regarding his eligibility and in advising Ms. Dawson-Murdock not to appeal the insurer’s denial.
In holding that NCG was a fiduciary, the Fourth Circuit relied in part on the plan’s summary plan description (“SPD”), which states that NCG is the “plan administrator” and “named fiduciary” of the plan and that ERISA imposes duties on those who operate the plan and that the people who operate the plan are called fiduciaries and have a duty to do so prudently and in the interest of plan participants and beneficiaries. The Fourth Circuit pointed out that ERISA contemplates two types of fiduciaries. The first type is a “named fiduciary” of a plan – a person named as a fiduciary in the plan documents is a fiduciary under 29 U.S.C. § 1102(a). The second type of fiduciary contemplated by ERISA is a “functional fiduciary” as defined in ERISA section 1002(21)(a). Thus, according to the court, “the concept of fiduciary under ERISA . . . includes not only those named as fiduciaries in the plan instrument, . . . but [also] any individual who de facto performs specified discretionary functions with respect to the management, assets, or administration of a plan.” 2019 WL 3308535 at *5, quoting Custer v. Sweeny, 89 F.3d 1156, 1161 (4th Cir. 1996). The court noted that it had previously relied on a 1975 interpretive bulletin published by the Department of Labor in assessing whether a person or entity qualified as a fiduciary under ERISA. See 29 C.F.R. § 2509.75-8. The interpretive bulletin states that “a plan administrator . . . must [by] the very nature of his position, have discretionary authority or discretionary responsibility in the administration of the plan.” 2019 WL 3308535 at *5, citing 29 C.F.R. § 2509.75-8 (D-3). Consequently, “[p]ersons who hold such positions will . . . be fiduciaries.” Id. Thus, according to the court, the interpretive bulletin explained that “a plan administrator is a functional fiduciary with respect to plan administration, but a person or entity that is not a plan administrator and performs only ministerial functions in relation to a plan is not a functional fiduciary.” 2019 WL 3308535 at *5.
The court ruled for the first time in the Fourth Circuit that “a participant or beneficiary is generally not required to allege that the administrator and named fiduciary also satisfies the functional fiduciary test in order to state a plausible fiduciary breach claim against it under ERISA.” Id. at * 6. The court also ruled that Ms. Dawson-Murdock had adequately alleged her claims that NCG by failing to advise her husband that he had the option to convert or port his group life insurance coverage and acted in a fiduciary capacity when its vice-president advised her that she need not appeal Unum’s denial decision.
The Fourth Circuit decision in Dawson-Murdock is important for three reasons. It clarifies that plan administrators and named fiduciaries are ERISA fiduciaries. It validates claims based on the administrator’s failure to advise plan participants concerning their rights and options under ERISA plans. And it allows administrators to be sued for misrepresentations regarding the actions a beneficiary must take to preserve her rights under a plan.
© Andrew Whiteman 2019
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