The United States Court of Appeals for the Ninth Circuit recently ruled in Bins v. Exxon Co., No. 98-55662, 2000 WL 1126387, (9th Cir. Aug. 10, 2000) (en banc) that an employer who administers a plan under the Employee Retirement Income Security Act of 1974 ("ERISA"), does not have a duty to follow up with an employee who has previously inquired about potential plan changes if, subsequent to the employee’s inquiry, the proposed changes reach the serious consideration stage, unless the employer agrees to do so. In so holding, the Ninth Circuit both adopted and interpreted the Third Circuit case Fischer v. Philadelphia Electric Co., 95 F.3d 1533 (3d. Cir. 1996).
An employer must answer truthfully questions about the substance of a potential change in benefits if the employer is "seriously considering" the potential change. Under Fischer, "serious consideration" takes place when (1) a specific proposal (2) is being discussed for purposes of implementation (3) by senior management with the authority to make the change. The plaintiff in Bins argued that although various company representatives truthfully informed him at the time he inquired about the existence of a potential early-retirement incentive program that they had no knowledge of any such program, his employer had a duty to later notify him of the potential program when "serious consideration" of the program began. The court rejected this argument, and held that an employer has no such duty unless the employee, in the course of inquiring about potential plan changes, asks to be kept abreast of any changes in the status of a potential change and the employer agrees to do so.
While the Bins decision appears to absolve the employer of any continuing obligation to notify a participant of the status of potential plan changes in the absence of a further inquiry by the participant or by agreement of the employer, the decision also may accelerate the date at which "serious consideration" of a plan change begins. Specifically, the court in Bins held that although the Vice-President of the Exxon division that employed the plaintiff did not have the explicit authority to implement the early-retirement incentive program until the program was approved by the parent corporation, "serious consideration" of the plan may have begun when thesenior executives of the division considered the plan, if under Exxon’s corporate structure the parent corporation effectively allowed the senior division executives to develop and implement policies for the division as part of their delegated authority.
The "serious consideration" test requires an employer to carefully review all of the facts which surround a participant’s inquiry regarding potential changes in an employer-sponsored benefit plan and aims to ensure that "employees learn of potential changes when the company’s deliberations have reached a level when an employee should reasonably factor the potential change into an employment decision." The existence of a duty to inform a participant of potential plan changes depends upon many factors, and employers would be wise to consult with an experienced attorney any time they consider materially changing an existing benefit plan in order to minimize their exposure to claims by participants for failure to disclose potential plan changes under "serious consideration."
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.