ERISA Section 104(b) (4): what documents do employees have a right to demand from their employers?

• Author: Miles, Anne-Marie M.

The American worker has an undeniable fear regarding his future pension benefits. As the following sample demonstrates, this fear has manifested itself frequently in all parts of the country: the Santa Fe New Mexican reported that state prison guards fear the loss of their pensions under a new system;(1) the Cincinnati Business Courier recently wrote about hospital employees who fear a loss of their pension funds under the hospital's privatization plan;(2) the Spartanburg Herald-Journal reported that Buffalo mill workers recently received notice that their pensions "are in jeopardy."(3) The fear of pension loss extends beyond just small pockets of individual workers. Some claim that uncertainty about pensions partially explains flagging consumer confidence in 1995.(4)

The University of Wisconsin published a recent study on the length of time spent at one job by the average American worker.(5) The study showed that job mobility greatly decreases in pension-covered jobs.(6) According to the authors, this study confirmed the conclusions of other studies that pension benefits have a greater impact on worker retention than an added dollar of wage, longer tenure, or union membership.(7)

Are workers' fears over the possible loss of benefits unfounded? Varity Corp. v. Howe(8) would seem to suggest otherwise. In Varity, the employer misrepresented the financial situation of a functionally insolvent subsidiary.(9) The employer's goal was to encourage workers to shift their nonpension benefits from a solvent subsidiary to a newly-incorporated, money-losing subsidiary in order to release the solvent subsidiary from the obligation to pay these benefits.(10) In an unprecedented decision, the Supreme Court allowed workers an individual remedy under section 502 of the Employee Retirement Income Security Act (ERISA) in order to provide equitable relief for these workers.(11)

The fear of losing pension and welfare benefits also has resulted in litigation initiated by workers who demand disclosure by their employer of documents under ERISA section 104(b)(4)(12) which would allow them to monitor their pension plans in order to avoid the Varity scenario. This Note examines the implications of ERISA for a worker seeking full document disclosure. The first section presents an overview of ERISA, explaining its basic structure and the plans that can be constructed under the statute. The next section analyzes recent court decisions regarding disclosure requirements under ERISA section 104(b)(4) and discusses the current circuit split involving this section.(13) The third section addresses Department of Labor (DOL) opinion letters written in response to attorneys seeking to advise clients regarding disclosure obligations.

This Note then turns to an analysis of the traditional judicial methods of statutory interpretation in the area: first, a textualist approach, and second, an approach that looks to legislative history and to the purposes of ERISA. This section also critiques both methods in order to demonstrate that although both methods of statutory interpretation are useful, neither is able to address disclosure requirements adequately under the statute. Finally, this Note proposes a third-tier pragmatic judicial inquiry as an alternate method of interpreting the ERISA disclosure requirements. This section specifically includes a five-part inquiry that courts should use to review litigation and addresses the possibility of congressional intervention by way of amending ERISA if this dilemma remains unresolved by the courts.

AN OVERVIEW OF ERISA

Before President Gerald Ford signed ERISA into law in 1974,(14) the gift theory predominated in the area of pension benefits: employers could choose to provide benefits but could set any limits they thought appropriate.(15) This laissez-faire approach, however, allowed 6,900 Studebaker Corporation employees to lose their pensions in 1963 because of an underfunded plan.(16) The outcry over the Studebaker debacle inspired Congress to draft federal pension legislation.(17)

ERISA's passage in 1974 marked a new era for pension benefits, but was certainly not the end of pension woes: Congress created what many criticized as one of the most complex statutes in existence.(18) ERISA's complexity is due partly to the fact that it displaced all state law with a broad preemption clause necessary to foster a uniform system.(19) The five primary goals of ERISA are to protect workers, to improve the design and regulation of pensions, to enforce worker pension rights, to provide insurance for workers who lose their pensions,(20) and to encourage the formation of new plans.(21)

ERISA is divided into four titles. Title I explains the reporting and disclosure requirements.(22) In addition, Title I defines and establishes requirements for: participation and vesting;(23) funding;(24) fiduciary responsibility;(25) and administration and enforcement.(26) Title II amends the Internal Revenue Code to provide qualified plans with tax advantages.(27) Title III describes the authority given to various federal departments for ERISA.(28) Title IV provides for the termination of plans and creates the Pension Benefit Guarantee Corporation (PBGC) to administer federally guaranteed pensions.(29)

ERISA plans involve four major parties: the employer, who makes contributions; the plan administrator, who, as the name denotes, administers the plan; the trustee, who invests the plan's assets or chooses another to invest assets; and the worker, who is the beneficiary of the plan.(30) There are two basic types of pension plans. The first, originally popular, and hence the plan type originally targeted by Congress,(31) is the defined benefit plan. This plan promises the worker a certain amount, based on a plan formula,(32) which is calculated by an actuary based on factors such as age, years of service with the employer, and the final average salary during a specified period.(33) Under a defined benefit plan, the employer bears the risk of loss because the employer must pay set benefits even if the investments are unsuccessful.(34)

The current trend among employers is to utilize the second type, the defined contribution plan,(35) which takes much the opposite approach. In a defined contribution plan, the employer contributes to an individual account established for each worker.(36) The worker's benefits depend on the value of the account, which varies with the success of investments made on the plan's behalf.(37) Employee stock ownership plans (ESOP) are a primary example of the defined contribution plan: the employer contributes to the worker's account and then invests the funds in the employer's own stock.(38) Under the defined contribution plan, the worker bears the risk of loss because the calculation of benefits is equal to contributions plus or minus the investment returns.(39) The current trend toward defined contribution plans and the resulting shift in the risk of loss have created a focus on the disclosure requirement of Title I.

The goal behind the disclosure requirement is clear. In the statute, Congress stated its policy "that disclosure be made and safeguards be provided with respect to the establishment, operation, and administration of such plans" and "to protect ... the interests of participants in employee benefit plans and their beneficiaries, by requiring the disclosure and reporting to participants and beneficiaries."(40) The basic purpose of disclosure, therefore, was to allow both participants and beneficiaries to review the method by which their plan was administered in order to arm them with the knowledge necessary to ensure compliance with ERISA.(41) The crucial role that disclosure plays is demonstrated through the onslaught of litigation occurring over the issue.

AN EXPLANATION OF THE CURRENT CIRCUIT SPLIT

A split currently exists among four circuits regarding the disclosure requirements under ERISA section 104(b)(4). In Bartling v. Fruehauf Corp.,(42) the Sixth Circuit initially interpreted ERISA section 104(b)(4) to allow broad disclosure to participants.(43) In Hughes Salaried Retirees v. Administrator of Hughes,(44) the Ninth Circuit originally followed suit and held in favor of broad disclosure in its initial hearing of the matter.(45) The court revisited the issue en banc, however, and vacated the earlier decision of the court's initial three-judge panel.(46) In Faircloth v. Lundy Packing Co.,(47) the Fourth Circuit, followed the Ninth Circuit's analysis and narrowly interpreted the statutory disclosure requirement, denying workers access to several documents.(48) Most recently, the Second Circuit similarly decided in favor of narrow ERISA section 104(b)(4) disclosure requirements in Board of Trustees of the CWA/ITU v. Weinstein.(49)

Bartling v. Fruehauf Corp.

In Bartling, a subsidiary of the Fruehauf Corporation ("Fruehauf") announced the termination of its pension plan and the formation of another in the following year.(50) Fruehauf presented a videotape and booklet explaining the termination for its workers.(51) The workers also received benefit commitment letters, which described monthly benefits along with the method of their calculation.(52) In the midst of these changes, Fruehauf also began discussing the sale of a division of its subsidiary to another company.(53) In the current climate of fear about pensions, workers in the division apparently became nervous and requested several documents regarding the pension plan.(54)

Fruehauf furnished the plan participants with the following documents: the plan itself; amendments to the plan; the Internal Revenue Service (IRS) tax determination letter;(55) filings with the IRS and the PBGC relating to the Plan; the Form 5500 for the past three years;(56) and the most recent summary plan description (SPD).(57) Fruehauf also offered to provide benefit calculations upon receipt of individual authorizations from participants in the plan.(58)...