Employer’s Deceptive SPD Violated Their ERISA Fiduciary Duty

Johnson vs. Ballad Health, 2022 WL 214488 (ED Tennessee 2022)

Johnson’s employer automatically enrolled her in an employer-paid long-term disability plan as part of her employment. Johnson also opted to enroll in the plan’s employee-paid “buy-out” feature. The employer’s summary plan description (SPD) described the “buy-out” benefit paid by the employee as 60% “additional coverage”, while the employee’s confirmation of benefits statement described the coverage. as “100% of salary”. The plan, however, described the benefit as “60% of earnings”.

Johnson has become disabled and is entitled to long-term disability benefits under the plan. She expected to receive 100% of her salary under the plan, but received only 60% of her salary. Johnson then sued her employer and the plan, claiming she was entitled to 100% of her earnings since she purchased the “buy-out” benefit.

The court ruled in favor of the insurer, finding that the insurer’s interpretation of the plan was “reasonable” and failed to meet the “arbitrary and capricious” standard under ERISA. The court also noted that the SPD was not very clear and should have at least defined the term “redemption” as used in the SPD.

As a result, the court found that the employer breached its fiduciary duty under ERISA to communicate with its employees in a clear and specific manner about the benefits of the plan and its specific provisions. The court noted that the plan was unclear as to what percentage of earnings is covered when the employee chooses the “buyout” option, based on the wording of the SPD. In fact, contrary to the language used in the plan, the SPD was misleading, so Johnson was entitled to receive a long-term disability benefit equal to 100% of her earnings, as she expected.

The judgment, in this case, reiterates various court decisions demonstrating a tendency of federal courts to protect the rights of plan beneficiaries and beneficiaries to receive clear and adequate SPDs. While it is clear that the SPD Terms are not enforceable as Plan Terms, pursuant to the United States Supreme Court’s decision in CIGNA Corp. against Amara, 131 S.Ct. 1866, 563 US 421 (2011), SPDs are still important documents. If employers do not ensure that their SPDs are clear and accurate, they risk breaching their fiduciary obligations under ERISA.