Employer Breached Fiduciary Duty by Issuing Inaccurate SPD

The United States Court of Appeals for the Sixth Circuit has ruled that an employer breached its fiduciary duty by furnishing a participant with a misleading summary plan description ("SPD") In Stiso v. International Steel Group, a participant sued his employer, alleging an ERISA breach of fiduciary duty for the refusal to increase long-term disability ("LTD") benefits in accordance with the terms of the SPD.

Background. The plaintiff had been receiving LTD benefits under his employer's disability insurance plan and believed that he was entitled to a 7% per year cost-of-living adjustment as described in the plan and the SPD. Accordingly, the plaintiff requested that the LTD insurer increase in his benefits. In response, the LTD insurer denied this request, and the plaintiff sued his employer and the insurer for failure to pay his full benefits and for breach of fiduciary duty.

The lower court granted the defendants' request for summary judgment and dismissed the case, finding that the terms of the LTD plan did not provide for the 7% annual increase sought by the plaintiff and that the plaintiff's request for equitable relief was not warranted. The plaintiff appealed this decision to the Sixth Circuit.

Sixth Circuit. The Sixth Circuit ruled that the employer had "breached its fiduciary duty by issuing a summary plan description that did not accurately reflect the terms of the plan." Thus, the court ruled that the employer (i) functioned as an ERISA fiduciary when it prepared and furnished the LTD plan's SPD to participants, and (ii) breached its fiduciary duty by furnishing the participant with a misleading SPD.

Next, the court confirmed that the insurer had a fiduciary duty to the plaintiff. Accordingly, the court ruled that the insurer had breached its fiduciary duty by interpreting the plan in a manner that served its own financial interests and was contrary to the representations made in the SPD.

Based on these breaches of fiduciary duty, the Sixth Circuit reversed the lower court's decision and remanded the case to the lower court where the plaintiff is entitled to seek appropriate equitable relief.

Action Steps for Employers. As demonstrated in Stiso, inaccurate SPDs can lead to unexpected liabilities for employers. Therefore, it is critical that employers review their plans' SPDs to ensure that they include accurate descriptions of covered benefits and any exclusions of coverage.