When modifying a retirement plan or implementing an early retirement incentive program, most employers don’t announce the news until the details are finalized and the program is set to go. Now an important case from the Ninth Circuit Court of Appeals details when you have to give employees advance notice of a new program or a change in an existing plan.
The appellate court, in rehearing a case it originally decided last year, significantly retreated from its initial ruling and has provided clearer standards for employers. We’ll explain your responsibilities under the new rules.
Rumors Of Change
After working 15 years for Exxon, oil-drilling rig technician Ernest Bins decided to retire. In the months before his retirement, Bins heard rumors that the company was going to offer a lump-sum early retirement incentive. He asked his supervisors and Exxon HR staff about the rumors, but they truthfully told him they knew nothing about it. Two weeks after he retired, Exxon announced an early retirement program.
Bins sued, charging Exxon breached its fiduciary duty by failing to advise him that it was planning the special program.
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Plan Under Consideration
Exxon contended that it had no obligation to tell Bins about the possibility that the new plan would be adopted. Although a committee at Exxon had begun looking at early retirement proposals several months before Bins retired, Exxon said the plan was neither considered by senior management nor formally approved until after he retired.
Court Explains New Rule
The Ninth Circuit, overturning a lower court decision in Exxon’s favor, established a new rule for when California employers who administer an ERISA plan must disclose changes that are under consideration.
Basically, you must answer any questions by plan participants about potential changes you are seriously considering. “Serious consideration” means that a specific proposal is being discussed for purposes of implementation by senior management who have the authority to put it into effect. Here are the details:
- Specific proposal. The proposed change must have progressed beyond the information-gathering stage, but it doesn’t have to be in final form and could still include several different alternatives.
- Discussed for purposes of implementation. Managers must have been mapping out the practicalities of putting the new provisions into effect.
- Senior management involved. The relevant senior managers are those who have the authority to implement the proposed change. In a larger company, this may include not just the board of directors, but also senior benefits managers who will make recommendations to the board about the change.
Bins’ case was sent back to the trial court to determine whether Exxon’s plan met these three criteria at the time he inquired about the rumors.
Employee Must Ask
It’s important to note that, in a reversal of its earlier position, the court said you don’t have to notify employees about a contemplated change unless a worker raises a specific question. In other words, if employees don’t ask, you don’t have to volunteer information before the plan is formally adopted. And, if a worker inquires before you have reached the serious consideration stage, you don’t have to follow up with the person about the progress of the changes unless you tell them you will.