Maintaining ERISA's Balance:The Fundamental Business Decision v.The Affirmative Fiduciary Duty toDisclose Proposed Changes

I. Introduction Congress enacted the Employee Retirement Income Security Act of 1974 (ERISA)1 to protect employees and to encourage employers to develop employee benefits programs.2 To decrease the administrative burdens involved with maintaining benefits plans, ERISA allows an employer to serve the dual role as both company official and plan administrator.3 Serving in this capacity becomes complicated, however, when employers make fundamental business decisions that adversely affect their employees' interests.4 This situation subjects employers to conflicting loyalties: A loyalty to do what is in the best interest of the company, and a fiduciary duty of loyalty to do what is in the best interest of the employee benefit beneficiary.5 Consider the following hypothetical scenario: In an effort to reduce its workforce, company X amends its benefits plan and offers an early retirement package for a three-month window period. Company X's early retirement program provides financial incentives to employees who willingly accept early retirement. Employee Y accepts the early retirement package and retires. After the initial window period expires, Company X offers a "sweetened" early retirement deal for an additional three-month window period which provides employees with even more financial incentives to retire. At this time, employee Y discovers that, while she was deciding whether to retire early, company X was considering whether to offer the "sweetened" early retirement package. Employee Y, ineligible for the "sweetened" early retirement plan, sues employer X and asserts that the employer breached its fiduciary duty to her by failing to disclose its intention to offer a more favorable early retirement package. This Note considers whether company X has an affirmative fiduciary duty to employee Y to disclose the proposed changes in its employee benefit plan. This question arises out of the current trend in the federal courts to expand a plan administrator's disclosure duties by emphasizing her fiduciary obligation to provide material information to plan participants.6 The tension between ERISA's dual goals of protecting employee benefits and containing administrative costs to encourage pension plan formation is at the center of this controversy.7 Developing an affirmative fiduciary duty to disclose proposed changes in benefits plans protects an employee's pension benefits by infringing on an employer's ability to make fundamental business decisions.8 At this time, the legal community has different opinions regarding how to maintain ERISA's delicate balance between protecting employee benefits and encouraging the development of benefits plans when dealing with fiduciary disclosure responsibilities.9 Those who support an affirmative fiduciary duty to disclose proposed changes in benefit plans develop the duty on a foundation of the common law of trusts and ERISA's purpose of protecting the interests of plan participants.10 To support their position, proponents of the affirmative duty emphasize the extensive development in the federal courts of an ERISA administrator's fiduciary duty to disclose.11 Recognizing that Congress intended for the courts to interpret ERISA's fiduciary duties in accordance with the law of trusts, federal jurisprudence supplemented the disclosure requirements with a fiduciary obligation not to knowingly deceive plan beneficiaries.12 Various federal courts interpreted this obligation as requiring employers to disclose truthful information, about proposed plan amendments, in response to a plan participant's questions.13 Proponents of the affirmative duty to disclose proposed changes believe this obligation is a logical extension of ERISA's fiduciary duty to disclose jurisprudence.14 In the alternative, opponents of the affirmative fiduciary duty to disclose proposed changes rely on the well-established "two hats doctrine" to support their position. The two hats doctrine recognizes that employers act as "settlors" and not as "fiduciaries" when amending employee benefits plans. …