As benefits manager, you have spent the last year researching, analyzing and designing a new retirement plan option for your company. For many employees, this new option would provide for greater benefits than those currently available.
On April 5, your proposal was presented to the senior management team. It was determined that with a few adjustments, the new retirement option will be fully implemented and available to employees retiring on or after August 1.
Several employees are considering retirement within the next several months, and knowledge of the new plan option may affect their retirement decisions. Must you disclose the details of the pending plan to them, if asked?
Yes. If an employer gives "serious consideration" to a plan change, the employer has a fiduciary duty under ERISA not to make any intentional or negligent misrepresentations. In addition, employers may have a further duty to correct any misleading information in summary plan descriptions as to which benefit options might be financially advantageous for potential participants.
What constitutes serious consideration?
Serious consideration exists when the following three criteria are met:
- a specific proposal;
- discussed by senior management with the authority to implement the changes;
- for purposes of implementation.
Consideration becomes serious when the subject turns to the practicalities of implementation.
Preliminary steps excluded.
Serious consideration does not include the preliminary steps an employer may take in designing or redesigning a plan, including:
- Gathering data and formulating strategies;
- Ordering an analysis of benefits alternatives;
- Commissioning studies;
- Interacting with upper level management or outside consultants regarding possible plan designs; or
- Engaging in other discussions regarding plan design that fall within the normal course of duties.
Advice to managers
- Once serious consideration is given internally to an action or decision regarding a benefit plan, make sure that information is communicated honestly and forthrightly to those that inquire about it.
- Companies choosing not to disclose plan changes until they are finalized should make eligibility for plan participation retroactive to the date of serious consideration.
- Develop a thorough communication strategy.
Cite: McAuley v. International Business Machines Corp. (6thCir, 1999) Dkt. No. 97-6091.
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