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Compliance December 19, 2011
Trustee May be Liable for Denial of Benefits to Ex-Spouse
A federal court found the owner of a business, as trustee to its retirement plan, may be held liable for a breach of fiduciary duty related to a denial of benefits.
Reported by Rebecca Moore
The U.S. District Court for the Western District of New York ruled Harry Stockwell, Jr.’s awareness of the alleged breach is sufficient to preserve Dawn Smith’s fiduciary duty claim against him.
The Stockwell Construction Co., Inc. Profit Sharing Plan states Stockwell, Jr., as trustee, had the duty to invest plan assets, so he is clearly a plan fiduciary. The fact Stockwell, Jr. did not have discretion over the payment of the benefits of Smith’s deceased ex-husband’s account does not shield him from liability, the court said.
Stockwell, Jr. was aware of the company’s decision not to pay benefits to Smith as correspondence was exchanged between him and the company. which requested information concerning the denial of benefits. This would have put Stockwell, Jr. on notice that Smith’s claim was being denied, and this knowledge, in turn, may establish a breach.
However, the court found that to the extent Smith brings suit against any defendants in a capacity other than that of administrator or trustee, including in a corporate or individual capacity, those claims must be dismissed.
The court found TPSI Welfare, LLC, the plan’s third party administrator, was merely communicating the plan administrator’s decision and this is not enough to hold it liable under a fiduciary breach under the Employee Retirement Income Security Act (ERISA). Smith’s complaint is insufficient to show that TPSI had discretion to make a determination on her benefits. Accordingly, the court ruled TPSI is not a proper defendant in the case.
According to the court opinion, Smith’s ex-husband was employed by Stockwell Construction Co., Inc, and accrued benefits under the Stockwell Construction Co., Inc. Profit Sharing Plan. He had designated his spouse, Dawn Smith, as the beneficiary of his plan benefits, and did not amend this designation, even after he and Smith divorced.
After he died on January 31, 2007, Smith made a claim for payment of benefits, but that claim and subsequent appeal were denied. Benefits were instead paid to her ex-husband’s father.
Smith filed suit under ERISA § 502(a).
The case is Smith v. Stockwell Construction Co., W.D.N.Y., No. 1:10-CV-00608-WMS.