By D. Ward Kallstrom and Justin T. Curley

The U.S. District Court for the Northern District of California recently ruled that a plan fiduciary owes a fiduciary duty – and consequently may be held liable for a breach of that duty under ERISA Section 404(a)(1), 29 U.S.C. § 1104(a)(1) – even when performing ministerial tasks such as providing a projected retirement benefit with an online pension calculator.  (Lorinda Reichert v. Time, Inc., et al., Case No. 11-cv-3592-WHA (N.D. Cal. Nov. 3, 2011)).

 In Reichert, the plaintiff was an executive with Sunset Publishing, a subsidiary of defendant Time, Inc., and a participant in the Time Warner Pension Plan.  In June 2008, defendant Fidelity Investments – a fiduciary of the Plan – began offering an online pension calculator on its website.  The plaintiff learned by using the online pension calculator that her projected pension benefit was $1.7 million if taken as a lump sum. 

 In December 2008, the plaintiff was notified that her position with Sunset would soon be eliminated.  That same month, she received a pension benefit statement from Time’s benefits department that was consistent with the projected pension benefit provided by the Fidelity website’s pension calculator.  The plaintiff alleged that she relied on these pension estimates in negotiating her severance package with Time.

 Soon after accepting the severance package, she received a letter from Fidelity indicating that her projected pension benefit was $725,000, about $1 million less than the amount indicated by the online pension calculator and her pension benefit statement.  The plaintiff contacted Time’s benefits department about the discrepancy and she learned that her years of service had previously been calculated incorrectly. 

The plaintiff filed suit, naming Time, the Administrative Committee of the Time Warner Pension Plan, and Fidelity as defendants.  She alleged several claims for relief, including breach of fiduciary duty under ERISA Sections 404(a)(1), 29 U.S.C. § 1104(a)(1), and 405(a), 29 U.S.C. § 1105(a), against the Committee and Fidelity.

The defendants moved to dismiss, asserting that the complained-of conduct – providing the plaintiff with an incorrect estimate of her future retirement benefit – was a purely ministerial, non-fiduciary function.  The defendants relied on 29 C.F.R. § 2509.75-8 (D-2), which provides that “a person who performs purely ministerial functions such as [preparation of employee communications material, calculation of benefits, and preparation of reports concerning participants’ benefits] for an employee benefit plan within a framework of policies, interpretations, rules, practices and procedures made by other persons is not a fiduciary because such person does not have discretionary authority or discretionary control respecting management of the plan . . . .”  The defendants also relied on case law from the Ninth, First, and Eighth Circuits which held that the calculation of retirement benefits is a ministerial function and that a person who performs purely ministerial functions is not a fiduciary.  

The district court was not persuaded.  It held that only a person who performs no more than ministerial functions and has no discretionary authority or control over the plan is immune from liability for breach of fiduciary duty when performing ministerial tasks.  That is, according to the district court, such a person is immune from liability not because he or she was performing a ministerial task, but because he or she was not a fiduciary to begin with.  While part of the responsibilities of Fidelity and the Committee involved ministerial duties, their duties also included discretionary authority over the Plan.  Therefore, the district court held, they owed a fiduciary duty to the Plan’s participants even when performing purely ministerial tasks, such as providing a pension benefit estimate with a website’s pension calculator.

 The district court also held that the plaintiff need not allege that Fidelity or the Committee made an intentional misrepresentation by providing the incorrect pension estimate.  Relying on Wayne v. Pacific Bell, 238 F.3d 1048, 1055 (9th Cir. 2001), the district court ruled that “a person also misinforms by saying that something is true when the person does not know whether it is true or not.”  In other words, according to the court, while the defendants’ incorrect calculation was simply a mistake and not intentional, the fact that they held it out as true without knowing whether it was true or not subjected them to potential liability for breach of fiduciary duty.

 Although this is a ruling on a motion to dismiss, this decision is an important reminder that fiduciaries must always exercise caution and diligence, even when performing ministerial duties such as providing plan participants retirement benefit estimates with a website’s pension calculator.  In addition, the opinion is a reminder that some judges look at fiduciary errors as per se breaches, that is, the fact that an error was in good faith and innocent of bad intent is not relevant.

 Lastly, it is worth noting that, given the facts alleged by the plaintiff, the design of the online pension calculator may have been done negligently.  If so, the negligent design may have been fiduciary in nature because its effect was plan-wide.  This would narrow the significance of the decision because it could provide an alternative basis of potential liability beyond the arithmetic error that resulted in the incorrect pension estimate.