A federal appeals court agreed with a retirement plan plaintiff that he did not have to show “actual harm” to seek a retirement plan reformation after alleged inadequate communication about a change in his former employer’s defined benefit plan.
The 2nd U.S. Circuit Court of Appeals sided with Geoffrey Osberg and other plaintiffs in Osberg v. Foot Locker, No. 13-187 (2nd Cir., Feb. 13, 2014) in finding that a federal district court decision erroneously applied an “actual harm” requirement. Foot Locker had argued that, as a former employee, Osberg lacks standing to pursue contract reformation in court and that he could not demonstrate fraud or mistakes entitling him to reformation.
The case’s latest ruling is considered damaging to plan sponsors because it opens the possibility for adjustments to plan terms by courts.
The Facts
Osberg’s suit claimed that Foot Locker failed to give plan participants notice as required by ERISA that the new cash balance plan Foot Locker was preparing to convert to would reduce future benefits. This ERISA notice provision arises from Section 204(h), which requires that advance notice of a plan amendment that would cause significant reductions in the rate of future accruals be given to all participants before the change is effective.
Osberg claimed that Foot Locker breached both ERISA disclosure requirements and fiduciary duty responsibilities by making false and misleading statements about the plan amendment that converted its structure to a cash balance plan from a DB plan in 1996.
The 2nd Circuit affirmed the district court’s dismissal of Osberg’s ERISA Section 204(h) claim because it did not give him the remedy he sought, namely a benefit calculated under the new cash balance plan but with an opening balance equal to Osberg’s annuity already earned under the old formula. The appellate court said insufficient notice invalidates the entire amendment, not just part of it, as Osberg was requesting.
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