ERISA Breach of Fiduciary Duty for Failing to Notify Profit Sharing Plan Participant of How to Request Distribution

Executives and employees with retirement plans in Chicago, and nearly everywhere else, now change employers with greater frequency than they did 50 years ago. Long gone are the days where you would typically work for the same company your whole career. This is part of the reason for the rise in popularity of the defined contribution plan over the more traditional defined benefit plan: because you can take your account balance with you. But how exactly do you take your account balance with you when you leave your employer?

Employees typically depend on the employer to provide them with information about how to take the distribution or roll the funds over into an IRA, or another employer plan. So what happens when the employer does not tell you how to make the request? This happened recently, and the United States Court of Appeals for the Fifth Circuit held the sponsor breached its fiduciary duty by failing to notify the employee about how to request a distribution of his benefits following the employee’s resignation. Kujanek v. Houston Poly Bag I Ltd., No. 10-20664 (5th Cir. Sept. 27, 2011). In that case, after the employee resigned, the profit sharing plan account balance dropped in value, and the decline could have been avoided if the employee knew how to request the distribution earlier. The court thus held the employer was required to make up for the “loss” to the plan (i.e., the drop in that account’s balance) because of the breach of fiduciary duty under ERISA § 502(a)(2). Recall, losses to the plan remedies under that subsection can be obtained for a single participant after Larue v. Dewolff, Boberg, & Associates, Inc., 128 S. Ct. 1020 (2008).

Though this case’s facts were limited to failure to notify a participant of how to request a distribution following resignation, the same principle could apply to a surviving spouse who is not notified of how to request a withdrawal following the death of the participant spouse. If your employer, or your spouse’s employer, has failed to notify you of how to request a distribution, call a skilled ERISA lawyer.