Plan Design Legal Update: Weanng Two Hats Wlhenlis a Company Speaking as a Plan Fidudiary Rather Than as an Employer?

Abstract

In a 1996 ruling that has important implications for all employers that maintain ERISA covered welfare benefit plans, the U.S. Supreme Court established a new standard for determining when an employer is acting as a "fiduciary" for ERISA purposes in disclosing benefits matters to employees. The High Court set the new standard in the case of Varity v. Howe. It found that the Varity Corporation had misled 1,500 employees about the security of their uninsured, ERISA-covered benefits when it persuaded them to voluntarily transfer to a new spinoff. The spinoff failed within two years, and employees lost their benefits. The High Court characterized the deal as "underhanded," and found that Varity had failed in its fiduciary responsibility to safeguard plan participants' benefits rights. "The principal conclusion to be drawn from Varity-apart from not deliberately misleading employees about ERISA plans-appears to be that an employer should be absolutely clear about when it is speaking as 'employer' versus when it is speaking as 'plan administrator,"' the author advises.