ERISA at 25 - and Its Most Persistent Problem
Jeffrey A. Brauch
Regent University - School of Law
Kansas Law Review, Vol. 48, P. 285
Twenty-five years after ERISA's enactment, federal courts are still struggling with how to handle the situation in which a promise is made that is inconsistent with the terms of a written plan. Part of the problem is that state law claims that would normally address the situation are generally preempted under ERISA's provisions. The other part of the problem is that none of ERISA's federally provided remedies specifically addresses the situation. In dealing with this problem, some courts have concluded that plaintiffs to whom promises were made are left without a remedy. Other courts have tried to fashion various remedies under state law or under ERISA itself, such as alleging the creation of an informal ERISA plan, estoppel, or breach of fiduciary duty. Each attempted solution, however, has either misread the text and purposes of ERISA or has wrongfully allocated power to federal courts that belongs in the hands of Congress.
With an unwavering focus on ERISA's purposes, provisions, and statutory framework, the article examines the problem of "the inconsistent promise." It also examines several approaches that courts have tried to use to address the issue in light of the narrow framework of remedies allowed within the legislation. The article includes an explanation as to why each "solution" has failed or is improper. Finally, the article proposes that Congress amend ERISA's civil remedies provision to include an estoppel claim such that a remedy is available for some inconsistent promises in a manner that is consistent with the framework and purposes of ERISA.
Various Court Approaches:
1) *State Law Claims
Even after the Supreme Court significantly narrowed preemption in New York State Conference of Blue Cross & Blue Shield Plans v. Travelers Insurance Co., in the context of "inconsistent promises," state law claims simply cannot stand under ERISA's preemption clauses. In essence, the plaintiff's claim is that plan terms were misrepresented. Thus, resolution of the claim both depends on an interpretation of the plan and has a direct impact on the operation and administration of the plan such that the claim "relates to" the plan and is preempted.
2) *Informal ERISA Plan Claims
Despite ERISA's requirement that the plan be in writing, it is now generally accepted that informal benefit plans can be created without a formal written instrument. However, in inconsistent promise cases, the claim has failed for two reasons. First, several courts refuse to apply the informal plan doctrine when the alleged informal plan would merely contradict the terms of an existing written plan. Second, it is very rare that the alleged promise meets the requirements of the test set forth in Donovan v. Dillingham such that an informal plan can be said to have been created.
3) *Estoppel Claims
In the classic estoppel claim, the participant or beneficiary asks the court to bar the plan and its fiduciaries from enforcing those written plan terms and to enforce the promise instead. Because ERISA does not explicitly provide an estoppel claim, courts have turned to ERISA's federal common law to create one. The circuit courts have fashioned dramatically different answers. Estoppel claims are inappropriate for two reasons. First, the claims improperly create federal common law and interfere with Congress' very clear policy choices about which rights, obligations, and remedies to create. Second, the circuits' wide variety of approaches to estoppel has resulted in nonuniform and inconsistent laws and regulations of ERISA plans, something that Congress expressly sought to avoid by enacting ERISA.
4) *Individual Claims for Breach of Fiduciary Duty
Since ERISA preempts state claims, plaintiffs and courts are turning to ERISA's remedy of breach of fiduciary duty for fiduciary misrepresentation. However, the claim is inconsistent with ERISA's statutory scheme. In addition, the doctrine has two significant limitations. First, breach of fiduciary duty actions may be brought only against fiduciaries, so a fiduciary must have made the promise. Second, the relief available for breach of fiduciary duty is limited to "equitable relief" such as injunctions, mandamus, or restitution - none of which adequately deal with most plaintiffs' harm in inconsistent promise cases.
The author proposes that Congress - not the courts - should amend ERISA's civil remedies provision to include a promissory estoppel claim. Congress should allow itself to be guided by two main principles in the drafting of the provision: first, that it must maintain a careful balance between the rights of individual plan participants and beneficiaries and the long-term interest of all participants and beneficiaries; and second, that any new remedy must not undermine the integrity of the written ERISA plan.
The types of promises that should be enforced under the estoppel claim are those that bear sufficient indicia of reliability and formality, such as formal written communications from an employer (e.g., summary plan descriptions, written contracts between the parties) and formal communications to a large group of participants or beneficiaries. In both examples, the promises should be made by high-level persons associated with the plan so that a plan participant or beneficiary could have reasonably relied on the promise.
Accepted Paper Series
Date posted: May 21, 2000
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