Opinion ID: 6330201
Heading Depth: 4
Heading Rank: 1

Heading: Mishandling of Plan Assets Allegations

Text: As to the mishandling of plan assets, Ms. Chelf argues that Wal-Mart was acting in a fiduciary capacity when it managed Plan assets and that it misappropriated Mr. Chelf’s shortand long-term disability premiums when he was on leave by collecting them when they were not owed. She also argues that Mr. Chelf had 50.8 hours of accrued PTO, which Wal-Mart should have credited to his optional life insurance premiums, or at least informed him of this available avenue for payment. These arguments were all dismissed by the district court as being “outside the scope of ERISA’s fiduciary requirements or administrative functions under the applicable regulations.” Chelf, 2018 WL 4219424, at . In concluding that Wal-Mart did not act in a fiduciary capacity, the district court relied on 29 C.F.R. § 2509.75-8 (D-2), which explains that certain “person[s] who perform[] purely ministerial functions” for an employee benefit plan are not fiduciaries. Id. Section 2509.75-8 (D-2), however, is limited to “persons who have no power to make any decisions as to plan policy, interpretations, practices or procedures, but who perform [certain specified] administrative functions for an employee benefit plan.” Id. One of these specified administrative functions is the “[c]ollection of contributions and application of contributions as provided in the plan.” Id. This provision, however, applies only to a specified group—those persons who are collecting and applying benefits while exercising no discretionary authority or plan management. Id. As the provision explains, “a person who performs purely ministerial functions . . . is not a fiduciary because such person does not have discretionary authority or discretionary control respecting management of the plan, does not exercise any authority or control respecting management or disposition of the assets of the plan, and does not render No. 20-6097 Chelf v. Prudential Ins. Co., et al. Page 8 investment advice with respect to any money or other property of the plan and has not authority or responsibility to do so.” Id. Section 2509.75-8 (D-2) is inapplicable here because Wal-Mart did not lack the “power to make any decisions as to plan policy, interpretations, practices or procedures.” Id. To the contrary, Wal-Mart was a fiduciary as it indisputably exercised control over the Plan’s assets when it handled Mr. Chelf’s premiums, exercised control over the disposition of the Plan’s assets, and had discretionary authority over the administration of the Plan. See 29 U.S.C. § 1002(21)(A). It also exercised discretionary authority when it denied Ms. Chelf’s appeal. See Pipefitters Local 636 Ins. Fund, 722 F.3d at 866–67. And, critically, one of the Plan documents that Wal-Mart attached to its motion—the 2016 Wrap Document—specifies that as a fiduciary, Wal-Mart has the power to “correct errors and make equitable adjustments for mistakes made in the administration of the Plan, including mistakes made in the payment or nonpayment of benefits under the Plan . . . .” That Plan document gave rise to a number of errors that the Complaint alleges Wal-Mart owed a duty to correct. These included that Wal-Mart collected premiums for Mr. Chelf’s shortand long-term disability insurance in error, failed to correct that error or remit those premiums to Prudential for Mr. Chelf’s optional life insurance policy, and failed to apply Mr. Chelf’s accrued PTO to these insurance premiums. Ms. Chelf adequately alleged that Wal-Mart “exercised control over the life insurance policy and premiums, which constituted a plan asset.” Taking these allegations as true, as we must at this stage, we observe that Wal-Mart was acting in a fiduciary capacity. By failing to correct these alleged errors, Wal-Mart mishandled the Plan’s assets and breached its fiduciary duty pursuant to its statutory obligations under ERISA. Such alleged premium improprieties demonstrate a failure to exercise fiduciary duties “‘with the care, skill, prudence, and diligence’ of a prudent person acting under similar circumstances.” James, 305 F.3d at 448–49 (quoting Krohn v. Huron Mem’l Hosp., 173 F.3d 542, 547 (6th Cir. 1999)). Ms. Chelf’s allegations that Wal-Mart’s failure to properly follow the Plan’s requirements for premiums resulted in the denial of benefits she was owed under Mr. Chelf’s optional life insurance policy. These allegations suffice to state a claim for breach of fiduciary duty because they demonstrate that Wal-Mart breached a fiduciary duty, that breach No. 20-6097 Chelf v. Prudential Ins. Co., et al. Page 9 caused harm to Ms. Chelf, and, if proven after discovery, this breach would entitle her to the equitable remedy of surcharge under 29 U.S.C. § 1132(a)(3). We therefore reverse the district court’s dismissal of these claims.